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Contractors Insurance: Why You Need It & How to Get Affordable Coverage

Contractors face more — and more serious — on-the-job risks than people in almost any other industry. Whether you own an electrical, excavation, plumbing, HVAC or any other type of contracting business, you know that accidents and other incidents can happen to you, and the people who work for you, any place, any time. Things can be fine one second, and the next, you’re dealing with a crisis.

Contractors insurance protects your business from financial losses that result from work-related accidents. They are often significant enough to force businesses to close. It’s critical that you take steps  to protect yourself, your employees and your business with adequate coverages and limits that match the risks you face.

Because every contracting company is different, business insurance solutions for them can range from simple liability insurance to a much broader mix of coverages. The type of contracting business you own, it’s size, your number of employees, their experience, the kinds of projects you take on, your location and other factors will impact how much insurance coverage you will need and what your premium will cost.

Here’s everything you need to know to get the right contractors insurance at a reasonable price.

Who needs contractors insurance?

The following kinds of contractors should consider carrying the coverage:

  • Electricians
  • Plumbers
  • Heating and air conditioning contractors
  • Carpenters
  • Construction workers
  • Painters
  • Landscapers
  • Excavators
  • Masons 
  • And more.

It’s usually a good idea for contractors, subcontractors and independent tradespeople to carry contractors insurance. In many cases, people who hire you will require you to have it, even if it’s not needed by law. In many cases you will have to show a certificate of insurance even before bidding on a job.

People who do this type of work face significant risks of accidents and other issues that could cost them a lot should something unfortunate occur. Even if your business is a relatively small one, you should speak with an insurance agency or company representative to find out if you should get coverage. It’s likely that they will recommend it.

What does contractors insurance cover?

Contractors insurance usually covers business liability exposures, such as injuries, damage to a client’s property or poor workmanship that your business is responsible for. The coverages most contractors buy and the things they cover include:

  • General liability: This type of coverage is usually required before a contractor can start working on a project. It will cover your contracting business if it’s held liable because people are injured or property is damaged due to your work. It can also cover your business if the work it does is faulty. See our guide to the best general liability insurance companies for contractors
  • Commercial auto: This insurance covers vehicles used on job sites, to handle work-related tasks and transport tools and materials to work sites. You can add coverage to cover equipment attached to certain vehicles including things like ladder racks and permanently attached tool boxes. (Regular tools, equipment and materials are not covered by this policy.)
  • Inland marine coverage: Sometimes referred to as property in transit coverage, it covers mobile machinery and equipment located anywhere or in transit.
  • Workers’ compensation: Commonly known as workers’ comp, this coverage is required in most states. It protects your employees if they become ill or injured at work. It covers things like medical costs, long-term care, therapy, missed wages, funeral and death benefits and more. See our guide to the best workers compensation insurance companies for contractors.

Most contractors secure their coverage through a Business Owners Policy (BOP), which packages together contractors liability insurance with coverage for personal property, commercial buildings and non-job-related accidents and injuries on business owned property. A BOP makes it fast and simple to add additional coverages and endorsements to your policy.

Tip: In most cases, independent and self-employed contractors are not required to buy workers’ compensation insurance. However, it may be required in certain states or to meet contractual requirements. If you are an independent contractor looking for the right insurance policies to protect you and your business, check out our guide of the best independent contractor insurance companies.

Think it’s impossible to be sued for shoddy work? Check out this story of a contractor who was sued over a swimming pool that can’t be used because it was built improperly.

How much does contractors insurance cost?

The biggest factor that affects the cost of your contractors insurance policy is the type of work that you do. For example, a landscaper is exposed to different types of risks than a roofer. And even among landscapers, people who do tree work are exposed to greater risks than those who tend flowers. Therefore, you would expect their premiums to differ.

It also depends on the types of insurance a contractor gets. For example, most contractors would need general liability insurance. Roofers pay the most for general liability insurance, averaging $3,590 a year. Locksmiths pay the least, at about $406 a year. 

Other factors that impact the cost of contractors insurance are number of employees, their experience, coverage needs and levels, vehicles, location, years in business and the claims history of the contracting business.

Work with an insurance agent who has experience in your area of specialization, a representative from an insurer that specializes in contractors coverage or an online premium generating tool from a reputable insurance company to get the coverage you need at an affordable price.

Tip: Some insurers offer one-size-fits-all contractors insurance. If you get this type of policy, you could be wasting money on coverage you don’t need, or find out that you don’t have the coverage to protect you when it’s too late.

How can contractors get cheap general liability insurance?

There’re a few things you can do to try to lower your costs. 

  1. Shop around. Even if you have a general liability insurance policy already, you should review it every 2-3 years and see if someone can give you a lower rate. Companies often give lower rates to new customers and then raise them over time. 
  2. Bundle your policies. The odds are, if you’re a general contractor, that you also need workers comp insurance, professional liability insurance, E&O insurance…the list goes on. Getting all of your policies from the same company should earn you a discount. 
  3. Raise your deductible. Usually, the default deductible on a general liability quote is $500. If you raise it to $1,000 or more, you’ll save money on premiums. Just make sure you have enough money set aside just in case. 
  4. Only get as big a policy as you need. If you’re barely scraping by, you don’t need $2 million in liability insurance. Be realistic. If you have no idea how much insurance you need, that might be a good time to talk to an agent. 
  5. Manage risks. These days, there are many software programs that will point out areas where you could improve your risk and increase workflow. Just a few are Salus ProSiteDocs, and TradeTapp. 

What other coverages do contractors need?

There are additional coverages, endorsements and bonds many contractors purchase. These include:

  • Contractors errors and omissions: This covers businesses for mistakes, errors, forgetting to convey information, misrepresentations and more.
  • Umbrella liability: This provides additional coverage over your policy’s limits. This is coverage contractors who face greater levels of risk should consider.
  • Contractors equipment. This coverage protects valuable contracting tools and equipment from damage that happens to them on the job. Examples of things that are often insured include compressors, pumps, power saws and landscaping equipment.
  • Employee dishonesty: Workers are often tempted to take tools and equipment from job sites. This coverage will help you recover losses from employee theft.
  • Equipment leased from others: This coverage protects equipment that your business rents or leases if it’s damaged or stolen, including things like forklifts, backhoes, lighting systems and generators.
  • Additional insured: Offers an added layer of protection if two or more businesses working on a job site are sued.
  • Expanded property damage: Provides an additional level of protection for property losses caused by contractors working on a job site. It’s particularly useful for contractors that work on expensive properties.
  • Pollution coverage: Offers protection if a contractor is held liable for polluting water, air or land. This includes legal defense, medical care, pollution mitigation and more. Single instance and long-term pollution problems are typically covered.
  • Waiver of subrogation. This endorsement prohibits an insurance carrier from recovering money they pay on a claim from a negligent third party. 
  • Per-project aggregate limit. Some clients will request that your coverage for their project be a certain limit. For example, they may want you to have $1 million in coverage, which would cover the project for up to $1 million in losses.
  • Many insurers also offer construction bonds. A construction bond is a type of surety bond used by investors in construction projects. They protect against disruptions or financial losses because a contractor is not able to complete a project or to meet contractual requirements. Construction bonds ensure a project’s bills get paid. 

These additional coverages can seem complex and confusing and in some cases they are. An insurance agent experienced in working with contracting businesses — or a rep from your insurance company — will be able to help you out with them.

Be aware: A certificate holder refers to the business owner or contractor that carries the coverages included on a certificate of insurance. An additional insured is another business or contractor that’s also included on the certificate holder’s insurance policy. 

How do I get contractors insurance coverage at an affordable price?

Your can get coverage online or through an insurance agent. What’s important is that you get multiple quotes from different reputable insurance companies. It will help you find all the coverage you need at the best possible price. Don’t make the common mistake of getting all your quotes from a single system. This could results in a series of quotes that all contain the same flawed system logic or error.

If you don’t feel confident reviewing quotes on your own, discuss your options with an experienced business insurance professional.

Tip: Not sure if an insurer you’re considering buying a contractors policy from is reputable? Take time to check ratings and read customer reviews. It will help you feel confident that you’re entrusting your business to an insurance company that is solid, stable and provides good service.

>>MORE: Best General Contractor Insurance Companies

>>MORE: Best Independent Contractor Insurance Companies

Why is risk and loss control important in contractors insurance?

While it’s important for contractors to get insurance to protect their businesses from the risks they face, it’s also critical to prevent those risks in the first place. Insurers won’t pay out on claims that can be traced back to negligence in the workplace or job site.

That’s why it’s a good idea to partner with an insurance company that offers risk control tools and educational resources. Some common examples of these include:

  • Courses to help prevent accidents
  • Safe driver and vehicle use training
  • Checklists to keep work sites safe
  • Signage that reminds workers about safety best practices
  • Research on how to avoid common injuries.

Reducing risks isn’t just the right thing to do for your employees and business. It can also help reduce your contractors insurance costs over the long run.

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