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How Safe Is Your Business Without Contractor’s Insurance?

20150317 - how safe is your businessWorking as an independent contractor can be much more rewarding than working for a corporation because you can set your own schedule, do things your own way, and there is no cap on your income potential. However, since it often requires working on other people’s properties, insurance coverage is typically necessary, and this type of insurance is usually referred to as contractor’s insurance.

Without it, you’re not in a position to protect either yourself or your business should an accident happen. In fact, a single lawsuit could put you out of business.

What Is Contractor’s Insurance?

Contractors insurance is actually a general term. It can include a variety of different types of insurance.

Here are some of the most common forms of contractor insurance coverage:

1. Business Owner’s Policy (BOP). This protects your business from loss of income, property damage, accidents, and other mishaps.

2. General Liability InsuranceThis protects your business from claims like personal injury, property damage, or bodily injury that arise because of your business operations. In fact, in a litigious society, it’s almost essential to have this type of insurance because you simply can’t afford not to have it.

3. Worker’s Compensation InsuranceThis protects your employees from loss of wages and medical costs if they are injured or become sick due to the nature of the job. It is usually mandatory for a small business.

4. Commercial Vehicle Insurance. This protects the vehicles related to your business operations.

While it is possible to get each one separately, depending on the needs of your business, you may often need more than one. Consequently, it is better to get them in a bundle from an insurer for your particular type of business, as it makes it much easier to avoid dealing with numerous insurers and different billing schedules.

Most often general liability insurance is considered a fundamental aspect of contractors insurance since it provides protection against lawsuits as well as other costs arising from injuries or accidents. This is often bundled with other coverage, like BOP.

Often, a business that uses trucks and trailers as part of its business operations will need commercial vehicle insurance to cover their pickup trucks, truck insurance, tow truck, tilt trailer, low-boy trailer, or gooseneck trailer.

Who Needs It?

The IRS defines independent contractors as:

“People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors.”

However, while each profession may need some kind of insurance, those required to carry extensive contractors insurance according to various laws are general contractors and subcontractors involved in a trade business like construction workers, carpenters, plumbers, cleaners, electricians, landscapers, painters, handymen, and snow plowers.

Types of Liability Coverage

One of the main reasons why the law is strict about certain business owner’s getting sufficient contractor’s liability coverage is because their business operations might cause structural damage to a client’s property, injury on a job site, or create accidental damage.

1. Structural damage. When contractors go into a place of work or a home for construction work, there is a high risk of damage because they need to use manual and power tools. If anything is broken during construction work, the insurance company will repair, replace, or compensate for the damage.

2. Injury. Again, this applies mainly for people in the trades who use tools. Construction work can results in accidents like a scaffolding collapse or someone accidentally getting hurt from a worker using tools. If anyone is injured during construction work, the insurance company will pay for medical costs or cover any lawsuits, including paying for legal costs and structural damage.

3. Accidents. Sometimes events happen that can’t be classified as either structural damage or injury. These are often labeled as accidents or other coverage. A plumber could be working on the bathroom upstairs and shake loose a kitchen appliance downstairs that then results in a fire. Although he did not specifically push the appliance off the kitchen counter, his rattling of the house walls while putting in some pipes for the shower might have indirectly caused it to fall.

Comprehensive Coverage

Contractors insurance should be considered as a comprehensive coverage plan. Depending on the nature of the work, a contractor may be required by law to carry specific types of insurance.  At other times, insurance may not be legally necessary, but it provides the contractor with peace of mind—because they can focus on their job without wondering if they will lose their entire business because of an accident. Finally, contractors that carry no insurance can also have difficulty securing a job without it, as those employing them require some measure of protection. The cost of the insurance can vary depending on the type of business and the project.

Do you have all the proper insurance for your business?



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

1 Comment

  1. I think in general, as a contractor, you need insurance. It’s for the off chance that you get injured or some part of the structure gets ruined. There are a lot of things that can happen that you can’t plan for or predict, but you can have coverage for them.

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