This has been a year of transformation for contractors all over the world. The changing economic landscape and rising demand for skilled workers mean you need the right protection to ensure you’re covered. That’s why having the right insurance plan is essential when working as a contractor.
This guide will provide the information and resources to ensure you have the right coverage for your unique situation. Learn about the different types of contractor insurance, what it covers, and how to find the best policy. With this guide, you’ll be able to confidently navigate the world of contractors’ insurance!
What Is Contractors Insurance?
Contractors insurance is a set of business insurance policies specifically designed for contractors to shield their business from risks associated with their operations. It is a broad term that encompasses a variety of coverage options, including liability insurance, property insurance, workers’ compensation insurance, and more. Contractors insurance helps protect your business from potential financial disasters caused by accidents, damages, lawsuits, or unexpected events that may occur during your contracting work.
Who Needs Contractors Insurance?
Any individual or business involved in the contracting industry needs contractors’ insurance. This includes general contractors, subcontractors, and independent contractors across various fields such as construction, renovation, HVAC, plumbing, electrical, landscaping, and more. Regardless of the size of your contracting business, whether you’re a solo handyman or a large construction firm, having appropriate coverage protects your business from legal and financial vulnerabilities.
A client engages a contractor to carry out a particular task, such as a house owner employing you to construct an extension to their house. Contractors can be categorized into two main types:
- Principal Contractor: Often known as a general contractor, this individual is responsible for supervising the project and fulfilling the agreement. For instance, overseeing the construction of a house extension.
- Subcontractor: This could be a worker or a firm employed by the principal contractor to execute specific duties or services as part of the project. A case in point is a principal contractor employing an electrician to set up the wiring in the new extension. Typically, the subcontractor answers to the contractor rather than the client.
Whether you operate as a principal contractor or a subcontractor, it’s essential to have contractors’ insurance in place to safeguard your business from accidents that can occur during work. Here’s a list of professions that require contractors’ insurance:
- Technicians dealing with appliances
- Woodworkers
- Concrete workers
- Workers in construction
- Contractors for drywall installation
- Electrical specialists
- Earthmoving professionals
- General maintenance workers
- Contractors for heating, ventilation, and air conditioning (HVAC)
- Landscape professionals
- Decorative painting experts
- Plumbing professionals
- Bricklayers
- Roofing experts
- Snow removal services
- Installers of tile, stone, and flooring
- Tree care service providers
- Welding specialists
What Does Contractors Insurance Cover?
An effective contractors insurance plan comprises multiple types of commercial insurance, offering protection to your business against various potential difficulties. These complications can encompass claims, litigation, and damages to business assets. Your coverage selections will hinge on your contractor business’ unique requirements.
It’s advisable, to begin with a Business Owners Policy (BOP). A BOP packages three crucial types of coverage together, and it’s usually more cost-effective than procuring each type of coverage individually.
Business liability insurance
Also known as Commercial General Liability (CGL), insurance covers legal fees and damages if your business is held liable for property damage, bodily injury, or personal and advertising injury. For example, if a client or third party gets injured at your construction site or if your work causes damage to a client’s property, CGL insurance would typically cover the associated costs.
Commercial property insurance
This policy covers your business’s physical assets, such as your office space, tools, equipment, and inventory, from risks like theft, fire, vandalism, or certain natural disasters. If, for instance, a fire broke out at your office, commercial property insurance would cover the cost of repairing or replacing damaged property.
Business interruption insurance
Also known as business income insurance, this policy compensates for the loss of income due to a covered peril that interrupts normal business operations. If you had to temporarily close your business due to damage from a covered incident, business interruption insurance would cover ongoing operating expenses and lost profits during the closure period.
What’s Not Covered by Contractors Insurance?
While insurance for contractors offers broad protection, it does not cover everything. Some typical exceptions include the following:
- Flooding (a distinct flood insurance policy is necessary)
- Seismic activities (a separate earthquake insurance policy is required)
- Radioactive contamination
- Acts of war
- Contagious diseases
- Government confiscation
- Unjust dismissal (except if you possess employment practices liability insurance)
- Deliberate and fraudulent actions
How Much Does Contractors Insurance Cost?
As a contractor, securing insurance is not just a matter of choice but a critical necessity for your business. Contractors liability insurance protects your enterprise against potential risks and financial burdens arising from accidents, damages, or lawsuits. But how much does this essential protection cost?
Insurance Coverage Needs
The scope and depth of coverage you require greatly influence your contractors’ insurance costs. Insurance needs differ widely based on your trade, project size, and risk exposure. If you opt for basic coverage with minimal policy limits, your premiums will likely be lower. However, your premiums will be higher if you need extensive coverage with high policy limits. It’s important to note that choosing lower limits or less coverage could expose your business to substantial financial risk in the event of a large claim.
Number of Employees
The number of employees in your contracting business plays a significant role in determining your insurance cost, especially if you’re required to carry workers’ compensation insurance. More employees mean more risk of work-related injuries, leading to higher insurance premiums.
Prior Claims History
Like many other types of insurance, contractors’ insurance considers your past claims history when determining your premiums. If you’ve made numerous insurance claims in the past, insurers may view your business as higher risk, leading to higher premiums. Conversely, a clean claims record can result in lower insurance costs.
Other Pricing Factors
Apart from the coverage needs, employee count, and claims history, several other factors can impact the cost of your contractors insurance:
Business Location: Where your business operates can affect your insurance cost. Regions with high claim rates or severe weather conditions may increase premiums.
Type of Contracting Work: The nature of your projects influences your insurance cost. High-risk trades or projects usually result in higher insurance premiums.
Experience in the Industry: If you’re new to the contracting business, you may face higher premiums due to a lack of experience. More experienced contractors may benefit from lower rates.
Credit History: Some insurers consider your business credit history when determining your insurance cost. A strong credit history can potentially lead to lower premiums.
Remember, the cost of contractor insurance is not an expense but an investment into your business’s future stability and success. While it’s essential to consider the cost, your primary focus should be obtaining the right coverage to protect your business. Always consult a reputable insurance agent or broker to help guide you in making the best decision for your specific needs.
7 Ways to Save on Contractors’ Insurance
While contractor insurance is essential for protecting your business from potential risks, it doesn’t mean it must be prohibitively expensive. You can employ several strategies to manage and even reduce your insurance costs. Here, we share seven effective ways to save on contractors’ insurance.
1. Compare Business Insurance Quotes
When it comes to insurance, one size does not fit all. Different insurance providers may offer differing rates for similar coverage. Gathering and comparing quotes from several insurance companies to get a great deal is wise. This will allow you to understand the options available and choose the best value for your specific needs.
2. Bundle Up
Many insurance companies offer discounts when you purchase multiple policies from them. This is often referred to as bundling. For instance, you could combine your general liability insurance and commercial property insurance into a Business Owners’ Policy (BOP). Bundling can simplify your insurance management and lead to substantial savings on your premiums.
3. Implement a Safety Program
Prevention is better than cure, and this applies to insurance as well. By implementing a robust safety program, you can reduce the likelihood of workplace accidents and claims. Regular safety training, using proper safety equipment, and enforcing safe work practices can lead to a safer work environment and lower insurance costs.
4. Classify Your Workers Correctly for Workers Comp.
Correct classification of your workers is essential in determining your workers’ compensation insurance premium. Misclassification can lead to overpayment. Make sure you classify your workers accurately based on their actual job duties and risk levels.
5. Join a Trade or Industry Association
Membership in a trade or industry association can often give you access to group insurance programs, which might offer coverage at lower rates. In addition, these associations often provide resources and guidance to help you maintain safety standards and manage risks, which can indirectly lower your insurance costs.
6. Pay Your Premium in Full
Consider paying your annual insurance premium upfront rather than in monthly installments if your financial situation allows. Many insurance companies offer discounts for full upfront payment, which can result in significant savings over the course of a year.
7. Increase Your Commercial Car Insurance Deductible
If your contracting business uses vehicles, you likely have commercial auto insurance. You can lower your premium by increasing your deductible, the amount you pay out of pocket in the event of a claim. However, ensuring that the higher deductible is affordable for your business should a claim arise is essential.
Final Words
Navigating the world of contractor insurance can seem complex, but understanding what coverage you need, what’s not covered, and how you can save on premiums can significantly protect your business and your bottom line. Remember that insurance is an investment in the security and stability of your business, so make sure you have coverage that suits your specific needs. Consulting with a trusted and knowledgeable insurance agent or broker can help you find the right fit for your business. It’s always better to be safe than sorry, especially regarding your livelihood.
