Contractors Insurance: Coverage, Costs & Providers

Contractors insurance refers to a group of policies that cover risks contractors typically face. For example, most contractors need general liability to cover claims that caused other people injury or property damage. Contractors can usually combine this coverage with property insurance in a business owner’s policy (BOP) for about $1,300 to $6,000 per year.

Applying for contractors insurance used to be a cumbersome task that took weeks. But CoverWallet’s online platform is quick and easy, allowing you to get fast quotes from top carriers at a low cost. Complete a free, no-obligation questionnaire online and get covered in minutes.

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How Contractors Insurance Works

Providers don’t offer a policy called contractors insurance. They sell individual policies, such as general liability, commercial property, and builder’s risk, and you can select the policies that best fit your operations. Many providers bundle contractors insurance into a business owner’s policy (BOP). That way, they can offer important coverages at a discounted rate.

BOPs typically include general liability and commercial property insurance. General liability insurance covers the cost of third-party lawsuits, and commercial property pays to repair or replace your business property when it’s damaged by a covered event. For contractors, insurers may include other essential policies like commercial auto and workers’ compensation.

Who Contractor Insurance Is Right For

Contractor insurance is a good call for just about any individual who enters contracts to provide services to other business owners. Independent contractors, or freelancers, can be found in just about any industry, but the term contractor is most often used in construction. In that industry, contractors insurance is more than just a good idea―it’s often required for licenses. Click on the link below to see contractor insurance requirements for your state.

Types of Contractors Insurance

Construction sites are risky places. These risks can result in injuries and property damage that threaten contractors’ businesses. Contractors insurance protects their assets when the worst-case scenario happens. Most insurers bundle the policies that cover the greatest risks into a BOP. This gives contractors fundamental coverages at a discount. BOPs usually cost $400 to $700.

Common Types of Contractors Insurance

General Liability Insurance

General liability insurance for contractors covers third-party lawsuits over property damage, bodily injury, and advertising injuries. A third party is essentially anyone who doesn’t work for you, so that can include delivery people, visitors, and clients. If someone claims you’re responsible for their damages, general liability covers your legal defense.

For example, general liability insurance typically pays for:

• Property damage: This can include replacing a customer’s plate glass window you shattered when bringing in your tools.
• Bodily harm: Such as when a delivery person’s medical bills after she trips over the table saw in your workshop.
• Advertising injury: Such as your legal bills if a competitor sues you for libel after you tweet about correcting their shoddy work.

General liability also covers damages caused by your completed operations. For instance, if you install kitchen cabinets that fall after you leave, general liability can pay the cost of repairing your customer’s wall, floor, and countertops.

Workers’ Compensation Insurance

Workers’ compensation insurance is a state-mandated coverage that comes in two parts. Part one pays an injured employee’s lost wages and medical bills as well as benefits to survivors if the employee dies on the job from his injuries. Part two, called employer’s liability, covers your employer’s liability legal costs if the employee sues for negligence.

Every state has its own way of doing workers’ compensation. However, one common thread is that most require construction industry businesses to get it. Even Texas, the only state that lets business owners opt out of workers’ compensation, requires it for construction businesses that contract with government entities.

Commercial Property Insurance

Commercial property insurance covers the value of your business property like your workroom and the tools, furnishings, and fixtures in it. When these items are damaged by a covered event, your insurer pays you the insured value so you can replace or repair them. Commercial property usually covers items loaned to your business too.

Property coverage is a no-brainer for contractors because they rely so heavily on their tools and equipment. It helps you pay for repairs so that you can get back to work sooner rather than later. Additionally, contractors usually qualify for a BOP, which combines commercial property with general liability for a reduced premium.

Commercial Auto Insurance

Commercial auto insurance is a necessity if your contractor business owns vehicles. Much like personal auto insurance, commercial auto has liability coverage to pay for other people’s damage and injuries when you’re responsible. You can also get coverage for your repairs and medical bills as well as accidents with uninsured and underinsured motorists.

Even if you drive your personal vehicle for work, you most likely need commercial auto coverage. Insurers usually exclude business driving from their personal auto policies. Many also exclude large trucks, like box trucks, but commercial auto can cover them.

Contractors Equipment Insurance

Contractors usually need contractors equipment insurance to cover their tools as they move between job sites. Contractors equipment is a type of inland marine policy. Unlike commercial property, which is tied to one location, inland marine goes where your property goes.

Items that can be covered by contractors equipment insurance typically include:

• Miscellaneous tools like hammers and wrenches
• Mobile machinery like forklifts and trailers
• Nonmobile equipment like workbenches and portable generators

The tools you own are covered by contractors equipment insurance, but the equipment you rent may be a different story. Because renting is a common practice for contractors, many insurers design inland marine policies that cover it. However, this isn’t always the case, so be sure to ask your agent about coverage for rented or lease equipment.

Professional Liability Insurance

Sometimes called contractors errors and omissions, professional liability insurance covers lawsuits over mistakes made by you and your employees. It pays for your defense should a client claim a financial loss due to your professional negligence. For instance, if a client sues for shoddy or incomplete work, professional liability covers lawyers’ bills and awards against you.

This product is especially important for contractors who design and build projects. Contractors professional liability insurance was created for them because designing projects increases your risk of being sued for negligence.

Builder’s Risk Insurance

Builder’s risk insurance is a type of inland marine policy that insures structures during construction and building materials at the job site. Because these policies are written for individual projects, you can usually get them on a short-term basis to pay for damage caused by vandalism, fire, and weather events.

Depending on your location, building codes may require builder’s risk. Clients might require it in contracts too. However, there is some debate as to whether general contractors or property owners should take out the policy. Your clients may prefer payouts go to them if they’ve already paid for the improvements.

Contractor Bonds

While not strictly insurance, surety bonds act as a guarantee that you will complete a project as your contract states. Essentially, the bond issuer, often an insurance carrier, promises to reimburse your client if you fail to deliver on your contract. As with insurance, you pay a premium on your surety bonds. The big difference is that you have to reimburse the bond issuer if it pays a claim.

There are four types of surety bonds contractors usually need:

• Contractor license bond: These bonds are required by law at the state, city, or county level. Without a license bond, a contractor cannot get licensed and may face a fine if they try to work in the area.
• Bid bonds: Bid bonds stop contractors from submitting unrealistic bids. They guarantee compensation for the project owner if you fail to honor your proposal. Not all projects require bid bonds.
• Payment bonds: These bonds guarantee payments for your subcontractors and suppliers and protect project owners from having to cover these costs if you can’t. Federal law requires contractors to get payment bonds before they can be awarded a contract that exceeds $100,000.
• Performance bonds: Performance bonds guarantee the project will be completed as outlined in the contract. If the project takes too long or fails to meet quality standards, the project owner can make a claim on the performance bond.

Government entities usually require contractor-specific surety bonds, but potential clients may ask if you’re bonded and insured too.

Contractors Insurance Costs by Policy

*General liability typically doesn’t require a deductible. However, some insurers may include one for the construction industry.

Contractors insurance costs vary widely because insurers consider several factors when calculating your premium. The factor that usually has the biggest impact is the service you provide. We found general liability policies for as low as $715 per year for electrical contractors, but the annual premium jumped to more than $3,000 for roofers. Other factors that can impact your costs include your revenue, number of employees, and coverage limits.

Top Contractors Insurance Providers

CoverWallet

CoverWallet is an online broker that specializes in small business insurance, providing quotes from top providers like CNA and Liberty Mutual. Contractors can use its straightforward technology to apply for coverage, compare offers, make payments, and create certificates of insurance (COI) immediately after purchase. The process begins with a short online application, which returns quotes in seconds. Additionally, contractors can get surety bonds from CoverWallet.

Travelers

Travelers is a well-known insurance carrier that has a strong appetite for construction and contracting businesses. It offers BOPs with off-premises property limits of up to $25,000, covering tools and equipment at worksites and in transit. Travelers’ BOP also includes coverage automatically for employee theft and damage to accounts receivable (A/R). Unfortunately, the company does not have online quoting, but you can enter your ZIP code on its website to get the name of a local agent.

The Hartford

The Hartford is a large, national carrier with a team of small business insurance specialists that can offer contractors a full array of essential policies, including general liability, commercial property, workers’ compensation, and inland marine. The Hartford is particularly strong for carpenters who work on interiors, finish and trim, and cabinet installation. These and other contractors can go to The Hartford for contractors equipment insurance with limits up to $100,000 and an option to add coverage that pays for rented equipment while owned items are being repaired.

Hiscox

Commercial and residential plumbers should look at Hiscox for their general liability insurance. As a carrier that specializes in small business insurance, Hiscox understands the unique risks facing businesses with 10 or fewer employees and offers monthly payment plans for no extra fee. General contractors can also take advantage of the company’s 5% multipolicy discounts when they purchase professional liability from Hiscox too.

Insureon

Insureon is another online-only insurance broker that gives you access to multiple carriers through a single application. What sets Insureon apart is the ability to quote hard-to-insure contractors through surplus line carriers. These carriers have the flexibility to write policies that standard insurers decline. The company only works with carriers with an A rating or higher, so you can trust your insurer is financially stable.

Contractors Insurance Frequently Asked Questions (FAQs)

Insurance for contractors usually starts with the basics, but requirements can become more complicated as your business grows. Some of the most commonly asked questions are answered below:

Do I need insurance for my subcontractors?

You can be held liable for subcontractors’ mistakes. At the same time, including them on your contractors liability insurance as an additional insured often costs you money. If your insurance carrier charges for every additional insured, then you may want to require all subcontractors to carry their own liability insurance and keep an updated copy on file.

What kind of bonds does a contractor need?

There are four bonds contractors usually need. The primary one is a contractor license bond that some states require before issuing a contractors’ license. Additionally, project owners may require bid bonds to guarantee that contractors enter contracts for the original bid, payment bonds to guarantee subcontractors and suppliers are paid, and performance bonds to protect the project owner from losses if the contractor fails to meet contractual obligations.

How can I get a surety bond?

The first step to getting a surety bond is to apply with a bond agency. Getting a license bond is usually easier than the others as long as you have decent credit. The other bonds typically require exemplary credit and financial statements. Once approved, you pay the premium and sign the contract. Most bond issuers require a full year’s premium upfront.

Bottom Line

Getting contractors insurance is important to the creation, growth, and sustainability of your business. Contractors insurance protects your business from the things that may go wrong during a project so that one mistake doesn’t ruin your business. The key is to make sure you maximize your coverage while limiting your yearly insurance costs.

To get proper coverage, consider working with an online broker like CoverWallet. It partners with top carriers that understand the insurance needs of contractors and have policies that cover the industry’s risks. Its online platform provides you with multiple quotes quickly and helps you find the right coverage at a low cost. Complete a free, no-obligation questionnaire online to get started.

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