Insurance Requirements For Subcontractors

Subcontractors are not always legally required to have insurance, but it is beneficial for them to have coverage to protect against financial losses and increase their chances of being hired. The types of insurance subcontractors should carry include general liability insurance, workers' compensation insurance, professional liability insurance, commercial auto insurance, and tools and equipment insurance. General liability insurance covers legal fees, injuries, and property damage, while workers' compensation covers medical payments and lost wages for work-related injuries or illnesses. Professional liability insurance, or errors and omissions (E&O) insurance, covers service-related mistakes, and commercial auto insurance protects against damage and injury liability for business vehicles. Tools and equipment insurance covers the cost of replacing or repairing lost or damaged tools and equipment. Subcontractors should also be aware of additional insurance requirements depending on the industry and project specifics.

General Liability Insurance

In most cases, subcontractors should have at least $1 million in general liability coverage. This coverage can be obtained from a client, by being added to their general liability insurance policy as an additional insured, or from an insurance provider.

Workers' Compensation Insurance

In most states, workers' compensation insurance is required by law for businesses with one or more employees, including subcontractors. Even in states where it is not legally mandated, general contractors may require subcontractors to provide proof of workers' compensation coverage or be included under the general contractor's policy. This is because the general contractor can be held liable for claims made by a subcontractor or their employees.

The requirements for workers' compensation insurance can vary depending on the state and the specific circumstances of the subcontractor. For example, independent contractors are typically not required to carry this type of insurance for themselves, but they may choose to do so. Additionally, the amount of coverage needed can differ based on the nature of the work and the associated risks. It is recommended to consult with an insurance professional to determine the specific needs and requirements for workers' compensation insurance.

Furthermore, workers' compensation insurance can help subcontractors qualify for contracts. Many customers or general contractors require subcontractors to carry this type of insurance before awarding a project. By having adequate coverage, subcontractors can increase their chances of being selected for projects and avoid unexpected costs associated with injuries or illnesses.

Commercial Auto Insurance

The coverage provided by commercial auto insurance includes legal bills, medical expenses, and property damage resulting from accidents involving the insured vehicle. It also covers vehicle damage caused by weather events, vandalism, and theft. Additionally, it provides protection against uninsured or underinsured motorists.

The cost of commercial auto insurance varies depending on factors such as the type of vehicle, the level of risk, and state regulations. On average, it costs around $147 to $173 per month, but it can be as high as $150 per month, depending on the industry.

To ensure adequate protection, subcontractors should consult with an insurance professional to determine the specific coverage requirements for their business. By having the right commercial auto insurance in place, subcontractors can mitigate financial risks and ensure compliance with legal and contractual obligations.

Tools and Equipment Insurance

This policy usually offers coverage for equipment less than five years old and valued at under $10,000. It can be added to commercial property insurance or a business owner's policy (BOP).

The cost of tools and equipment insurance depends on various factors, including the value of the tools and equipment, how often they are moved, the coverage type, the property valuation method, policy limits, and deductible. Small business owners pay an average premium of $14 per month for this type of insurance.

Commercial Property Insurance

Subcontractors in the construction industry should pay particular attention to their Commercial Property Insurance coverage. Construction projects are rife with risks and potential liabilities, and it is common for each party involved to try to shift liability exposure to other companies. Therefore, having adequate insurance coverage is essential to protect your business from financial losses.

Additionally, subcontractors should be aware that their contractor's insurance policy may not cover them. Subcontractors are typically not covered under a general contractor's insurance policy unless they are specifically named as an additional insured on the policy. As such, it is crucial for subcontractors to have their own Commercial Property Insurance policy to ensure they are protected in the event of property damage, loss, or theft.

Frequently asked questions