Whether you are a large contractor or a small business that does subcontracting work under a general contractor, you are required by law to carry certain types of insurance. Although each state sets its own guidelines as to which types of insurance you are required to carry and the minimum policy limits therein, you can be almost certain that at a bare minimum you will need General Liability and Workers Compensation. Other types of contractor insurance that you may or may not need to carry would be Disability, Commercial Auto & Truck if you own or operate vehicles in the course of your business, Inland Marine, Bonds, Life and Umbrella.
One of the most important types of contractor insurance, if not the most important, is general liability insurance. This is not just because it is required by law but because it provides a whole host of coverages that fall within two broad categories of property damage and personal injury. This particular type of insurance` covers any loss or damage that could be either the direct result or indirect result of an action on the part of the contractor and/or the contractor's employees. This loss or damage can be to persons, products or structures, and can include such things as the client’s lost income as a result of these damages. Of course, general liability property damage insurance covers so much more than that, and the cost of each policy would be dependent upon the number of coverages included.
Worker's Compensation is sometimes referred to as workers’ comp, and is generally required by law both for the general contractor and any subcontractors. This particular type of insurance provides replacement for loss of wages if injured either on the job or off location if acting within the capacity of a job related task. It covers economic losses, medical costs and also compensation for pain and suffering. If loss of life is involved, settlement is made with any dependents. It is the responsibility of general contractors to ensure that any sub contractors working under them also carry worker’s comp and they would also be required to provide proof of coverage for themselves and any of their employees as well.
The following group of insurance coverages are usually not required by law, save however Commercial Auto & Truck in such cases that automobiles are used in the course of business. Here is a brief summary of those types of coverage:
- Disability – Designed to cover up to 60% of lost wages should you or your employees suddenly become disabled and unable to work. Available individually or as group plan.
- Inland Marine – Coverage to guard against loss of materials and/or equipment when in transit except over the oceans. In other words, domestic transit and/or while being held at Customs or the USPS.
- Commercial Auto & Truck – If you own, rent or lease vehicles to be used for business purposes, commercial coverage is required. Private policies do NOT cover automobiles used in the line of business.
- Life – Life insurance provides death benefits and this type of policy can be offered as part of a group plan which covers both yourself as the owner of the business as well as to any covered employees.
- Bonds – Although not insurance in the strictest sense, there are a number of bonds which protect the client and any sub-contractors should the contractor fail to perform per contractual agreement. Many clients require a surety bond as part of the contract.
Again, each state has its own insurance legislation in place which will impact the types of coverage a contractor must carry. When applying for licensure in your state, the issuing body can many times advise which coverages are required by law. Also, when getting quotes either online or in person for General Liability and Workers’ Comp, the insurance provider licensed to do business in your state can explain types of insurance you will legally need to carry. For the greatest protection, take the time to consider optional contractor insurance policies available to you.