Insurance For Contractors 101

If you are working as a general contractor, construction contractor, carpenter, electrician, or any other type of contractor, you need to purchase contractor insurance to protect your business.

In this post, we will explain why contractor insurance is important, what types of contractor insurance policies are out there, and how much you can expect to pay for contractor insurance.

Are You Required to Have Contractor Insurance?

Usually, it is not a legal requirement to purchase contractor insurance. There are some exceptions though, so it is important to check your state’s laws. You might need to apply for insurance in order to be legally licensed.

Additionally, even if your state does not require you to purchase general liability insurance for licensing purposes, you will still be required to at least purchase workers’ compensation insurance if you have any employees.

Why You Need to Insure Your Independent Contractor Business

There are a lot of things that can go wrong in the course of performing your work as a contractor:

• Your valuable equipment and supplies could be lost, damaged or stolen.
• You or one of your employees could be injured on the job.
• You or one of your employees could injure a client on the job.
• You could damage your client’s property, or they could claim you did.

Note that if you hire a subcontractor and the subcontractor screws up, the client can still sue you for the damages.

Who Needs to Purchase Contractor Insurance?

What types of trades are covered under contractors insurance? You need to purchase contractor insurance if any of the following describe your occupation:

The list above is not a comprehensive one. There are plenty of other contractor jobs out there, and all of them require insurance.

Types of Contractor Insurance

Now you know who needs contractor insurance and a few of the reasons why. But what types of insurance do you require?

• General liability insurance: This is the type of insurance that covers damage to someone else’s person or property. For example, if a customer trips over a bucket of paint you have sitting out, then falls and sprains his ankle while also staining his carpet, general liability coverage would help you afford the costs if he sues you for the injury, the property damage, or both. If you are going to get just one type of insurance for your contractor business, this is the top recommendation.

• Errors and omissions insurance: If there are damages as a result of some kind of negligence on your part (whether real or perceived), errors and omissions insurance can help you cover the costs. Another name for this type of policy is “professional liability insurance.”

• Commercial auto insurance: A lot can go wrong on the road as you are driving your business vehicle to and from job sites (or even as you are parked at job sites). Cover your work vehicle(s) with commercial auto insurance.

• Workers’ comp: If you have employees, it is a state requirement that you pay for workers’ compensation insurance. This insurance will cover lost wages and medical costs for workers who get sick or injured on the job.

• Tools and equipment insurance: As a contractor, you have a large assortment of valuable tools and equipment that you are going to want to protect in case of damage or theft. You can do so with a tools and equipment policy.

• Surety bonds: Let’s say you have a contract to work on a job for a client. The client invests in the project, and you begin working on it. But then, something prevents you from finishing the work. Perhaps a storm destroys the section of a building you were working on, or a crucial supply becomes unavailable due to manufacturing shortages or distribution problems. You now are not able to complete your work on the project. With a surety bond, you will be able to reimburse the customer.

• Business income insurance: Imagine something interrupts you from being able to carry on business as usual. Perhaps an essential piece of equipment was damaged or stolen, for example, and you simply cannot work without it. Business income insurance will help you to offset the lost income during this interrupted period when you would usually be working.

While these are some of the most popular types of insurance for contractors, there are additional types of policies that may be worth purchasing as well, depending on your business operations.

Factors that Affect the Cost of Contractor Insurance

How much is contractor insurance? That depends in part on the types of coverage you purchase. Here are some common averages we see quoted:

• General liability insurance: $90 a month
• Errors and omissions: $45 a month
• Commercial auto: $165 a month
• Workers’ comp: $265 a month
• Tools and equipment: $15 a month
• Surety bonds: $8 a month

Added together, you can see how you could easily end up paying in excess of $500 a month for all of your necessary contractor insurance policies.

That is why it is essential to shop around to make sure you are getting the best deal. Here are some additional factors that can impact the cost of contractor insurance:

• Your type of contractor business: With so many different types of contractor businesses out there, there is a pretty wide range of risk between them. A roofing contractor, for example, who is constantly working at heights, might be considered a riskier customer by an insurance carrier than other types of contractors who are working in safer settings. The types of equipment you operate as well as the nature of the work you perform also can impact risk perception. The riskier your contractor business appears, the more expensive your insurance quotes are going to be.

• Coverage amounts: Higher coverage amounts in your policies will help you to pay for larger damages. But they do come at a cost; you will be paying more each month for your insurance if you opt for higher coverage amounts. You will have to decide for yourself whether the added costs are worth it or not for the extra peace of mind.

• Deductible amounts: One way you can reduce your monthly insurance costs as a contractor is to increase the amount of your deductible. This is the money you would be expected to pay out of pocket after filing a claim before the insurance starts covering costs. As with the coverage amounts, there are tradeoffs in either direction. You will need to decide whether the monthly savings are more important to you or whether it would be better to keep your deductible lower in case you do need your insurance to pay for something.

• Where you work: Both the geographical area where you are working and the nature of your worksites could have an impact on how much business insurance for contractors will cost you. Some locations are simply riskier than others.

• How big your company is: In general, the larger and more complex your operations as a contractor are, the more expensive you can expect your insurance costs to be. One lone contractor working out of a single vehicle in a small area will have less to pay than a contractor who has a dozen employees and as many vehicles, and who is serving an entire metropolitan area.

• Your payroll: With respect to workers’ compensation, the higher your payroll is, the more you will have to pay for workers’ comp.

• Your equipment value: If you are purchasing coverage for your tools and equipment, the value of that equipment as well as the difficulty and costs of potential repairs will impact how expensive it is to cover.

• Your claims history: The longer you stay with an insurance company without making any claims, the more you will prove yourself to be a reliable contractor who does a good job avoiding injuries, accidents, and costly mistakes. That means your insurance company might be willing to discount your insurance costs. If you break your track record and make new claims, however, your discount might go away.

• Bundling and other discounts: Some insurance carriers may offer other opportunities to lower insurance costs. If you combine multiple policies into a single bundle from the same carrier, that is a common opportunity for a discount.

• Which insurance carrier you choose: All things being equal, some insurance carriers may offer you more competitive quotes than others. That is why you should compare quotes from more than one insurance company before purchasing contractor insurance. To make it fast and easy for you to do just that, we have put together a list of recommended contractor insurance companies below.

Where to Get Contractor Insurance Quotes

Here is where you can purchase contractor insurance policies that provide excellent coverage at competitive rates.

1. The Hartford

https://www.thehartford.com/business-insurance/contractor

The Hartford is one of the oldest and most well-established insurance companies out there, having protected customers for over two hundred years.

You can purchase contractor liability insurance from The Hartford. The company suggests a business owner’s policy that bundles together general liability insurance, commercial property insurance and business income insurance. They also offer contractors equipment insurance and commercial auto insurance.

The Hartford further subdivides its offerings for different contractor professions. For example, you can shop for plumbing insurance, home inspector insurance, electrical contractor insurance, pool and spa contractor insurance, alarm contractor insurance, construction contractor insurance or railroad contractor insurance.

2. Nationwide

https://www.nationwide.com/business/insurance/industries/types/contractor-insurance

Another big insurance company that offers contractor insurance policies is Nationwide. The core coverages available include general liability insurance and equipment & tools insurance.

Nationwide also offers a number of other types of coverages that may be useful to contractors, including business auto, workers’ comp, property, umbrella liability, and surety bonds.

If you are looking for additional support, you can take advantage of Nationwide’s tools for risk management. There is even a Loss Control Services team you can request to assess your business to help you identify ways you could potentially lower your risk.

3. Selective Insurance Group

https://www.selective.com/for-businesses/businesses-we-insure/contractors

Selective Insurance Group is not a single insurance company, but rather a holding company. Ten different insurance companies fall under the Selective umbrella, all of which have A+ ratings. They serve customers in the Midwest, Southern and Eastern US as well as Washington DC.

Through Selective Insurance Group, contractors may apply for general liability, commercial auto, inland marine, and commercial property insurance.

Those are just the main types of contractor insurance offered by Selective. You also can apply for additional types of optional coverage. These include:

• Business income – actual loss sustained
• Commercial umbrella insurance
• Cyber liability insurance
• Data compromise
• GreenPac®
• Herbicide & pesticide applicator
• Identity theft recovery
• … And more

The list of coverage types is pretty extensive. In addition to a wide selection of coverage options, Selective also offers a number of different Safety Management Services.

4. NEXT

NEXT is an insurance company that focuses exclusively on serving small business owners. More than 420,000 small businesses are insured by NEXT. This company takes pride in its rapid claims process. It is common for customers to receive decisions inside of 48 hours of submitting their claims.

NEXT says that contractors who use them for their insurance needs may receive up to 25% in discounts. A 10% discount is available when you bundle policies.

The process of applying for contractors insurance through NEXT is also fast and easy. You can get insurance in just 10 minutes and receive instant proof of insurance. You can speak with an agent during the application process if you want, or you can handle it all yourself online.

Along with general liability and errors and omissions coverages, NEXT provides workers’ comp, commercial auto and tools & equipment coverages.

Get Contractor Insurance to Protect Your Business Now

Every day you operate as a contractor, you take risks. Contractor insurance can help you mitigate those risks.

To protect yourself, your business, your employees, and your equipment now, click on any of the links on this page to shop for contractor insurance.