Contractor insurance can protect your small business from going under if you cause property damage, a piece of equipment gets damaged, or one of your employees gets hurt while working on a project. Your state may require you to keep contractor insurance to maintain your license, or a company looking to hire you may include it as a hiring requirement.
Most contractors will need several types of insurance to protect against various risks threatening your small business. Luckily, they can usually be bundled together with the same insurance company and you may even get a discount. Here’s how contractor insurance works and where you can get it.
How does contractor insurance work?
Contractor insurance is usually an insurance policy package with several types of coverage. These policies can protect small-business owners from the full impact of financial losses that can occur if someone files a claim or lawsuit.
The most common types of small-business insurance contractors purchase are general liability insurance and inland marine coverage. Different factors like your business size, state regulations, and your industry will determine if you need more than a couple of policies to protect your business.
Contractors insurance can cover scenarios like:
- Someone steals your tools from your work truck.
- A client files a lawsuit against you for shoddy workmanship.
- While working in the attic, one of your employees accidentally damages a client’s home and belongings after they misstep and fall through the ceiling.
What does contractors insurance cover?
What contractors insurance covers depends on the type of policy you purchase. Here are the different types of commercial insurance and what each policy covers to help you determine your specific coverage needs.
General liability insurance
Contractor liability insurance covers third-party property damage, bodily injury, and other harm that may be caused while performing work for hire.
\For example, you’re working a job and need to get a tool from your truck. You don’t realize the client is behind a door, and when you open it, you hit them with the door, breaking their nose, and damaging some heirloom china they had in their hand. They sue you for medical expenses, property damage, and pain and suffering.
Whether you’re an independent contractor or a subcontractor, general contractor insurance can cover your legal fees and settlement costs.
Inland marine insurance
The inland marine policy has nothing to do with water or boating. It covers repair or replacement of your business personal property, like tools or equipment, if they get damaged, lost, or stolen. It can also cover your employees' tools and any equipment you borrow.
Let’s say you’re a subcontractor whose general contractor stores your tools at the job site. The storage location is broken into, and the items you’re holding there are stolen. The inland marine policy would cover the cost of replacing your stolen equipment.
Business owners policy (BOP)
The business owner’s policy combines general liability coverage and commercial property insurance in one policy. If you need both policy types, you may get a discount by purchasing a BOP instead of each policy individually.
Not all contracting small businesses will qualify for BOP bundles. Insurers typically only offer them to low-risk contractors, so if you’re in a high-risk construction industry, for example, you might not qualify.
Commercial property insurance
Commercial property insurance covers your business equipment, tools and commercial buildings if they are damaged in covered events, such as weather, fire, and similar hazards.
If a fire breaks out or a windstorm takes the roof off your commercial building, damaging it and some of your inventory, commercial property coverage will pay to repair the wind damage and replace damaged inventory. It can also cover operating expenses and lost income while repairs are being made.
Commercial auto insurance
A commercial auto policy will cover your work vehicles if they’re involved in an accident. It can pay for medical costs, legal costs, and property damage. Almost all states require commercial car insurance for business-owned vehicles.
Consider hired and non-owned auto insurance if you use a personal, leased or rental vehicle in your business.
Workers’ compensation insurance
If you have employees, you should have workers’ compensation coverage. This policy will cover medical bills and lost wages for work-related injuries and illnesses.
Most workers’ comp policies also include employer’s liability insurance, which can cover lawsuit expenses if a worker sues you because of work-related accidents or sickness.
Professional liability insurance
Also called errors and omissions, or E&O insurance, professional liability insurance can cover mistakes your business makes while performing professional services, like:
- Breach of contract.
- Missing a deadline.
- Professional negligence while performing a hired service.
For instance, your construction company accepts a bid for a project with a firm deadline. You make a scheduling error, delaying essential materials, and miss the deadline. Your E&O policy can cover legal fees and settlement costs if the client sues.
Builders risk insurance
Also called course of construction insurance, this policy covers buildings under construction against damage from things like fire, theft, and vandalism. This includes brand-new builds and existing buildings going through renovations.
If you’re working on a large construction project and someone steals some of the building materials or a fire damages the building and construction materials, a builder risk policy could pay for the damage.
Commercial umbrella insurance
A commercial umbrella policy can increase liability limits if there’s a claim against your commercial auto, employer’s liability, or general liability policies.
Suppose you reach your limits in one or more of the underlying policies. In that case, the umbrella coverage will automatically kick in, providing more liability coverage up to the policy limit.
Surety bonds
If you can’t fulfill your agreement or contract terms after accepting a project, a surety bond will reimburse the customer to make them whole. Surety bonds are typically a per-project policy in the total project amount.
If you accept a $20,000 project but can only complete half, the surety bond can cover the other half, payable to the client.
How much does contractor insurance cost?
Contractors insurance costs will vary by several factors, including:
- Your business location.
- The number of employees you have.
- The type of contracting business you have.
- The insurance company you choose.
- The types of coverage, limits and deductibles.
Keep in mind, your contracting profession is the most significant factor affecting your business insurance premium. Roofers, for example, pay six times more for general liability insurance than home inspectors, locksmiths, and snow or ice removal contractors, according to Insureon, an independent insurance agency. There is a much higher risk of accidents as a roofer than as a locksmith, so you’ll pay more for the same coverage.
The table below shows the median monthly cost Insureon customers pay for two types of contractors business insurance policies. Comparing quotes from several small-business insurance companies can help you find the best coverage and price.
| Contractor policy type | Median monthly cost for general contractors | Median monthly cost for construction businesses and contractors |
|---|---|---|
General liability insurance | $142 | $80 |
Business owners policy (BOP) | $121 | $98 |
Workers’ compensation | $318 | $254 |
Commercial auto insurance | $180 | $173 |
Contractor’s tools and equipment (inland marine) | $14 | $14 |
Professional liability insurance | $74 | $74 |
Commercial umbrella insurance | $143 | $81 |
Builder’s risk insurance | $134 | $105 |
Surety bond | $10 | $8 |
Where can you get contractor insurance?
Many insurance companies offer commercial insurance to protect your contractor business. Which company is the best fit depends on how fast you need coverage, the types of policies you need, and the type of work you do. The best way to find the right coverage is to compare quotes with different business insurance providers.
If you need coverage fast and are comfortable with getting quotes and applying online, consider:
- Next Insurance: Next offers contractors insurance tailored to your specialty. After you purchase a policy, you can send a digital certificate of insurance to clients or contractors upon request.
- Thimble: Whether you're hiring subcontractors to work for you or you’re doing the work yourself, Thimble offers temporary or permanent coverage to protect your business and meet contract requirements.
If you’re not sure what insurance coverage you need or prefer to work directly with an insurance agent, check out the following insurers.
Nationwide
With highly customizable contractor insurance policies, Nationwide may be a good fit if you need specialty coverage. For example, you can expand the general liability insurance basic coverages to include add-ons like product and completed operations liability, liquor liability, directors and officers liability, or hired and non-owned auto liability coverage.
State Farm
Artisan and service contractors, like carpenters, electricians, and lawn care specialists, may want to consider State Farm’s package coverage. It can include coverage for business personal property, liability, completed operations, mobile equipment, property of others, and building property.
The Hartford
A BOP from The Hartford may be a good idea if you’re looking for a policy bundle instead of purchasing a la carte. The Hartford offers options like cyber insurance, business income insurance, management liability, and workers’ compensation.
I'm an expert in the field of small business insurance, and I've got a wealth of knowledge to share on the topic. Having worked extensively in the industry, I can provide you with detailed insights into how contractor insurance works and what it covers. Let's dive into the key concepts mentioned in the article.
Contractor Insurance Overview: Contractor insurance is crucial for protecting small businesses from various risks that could lead to financial losses. It's often a package of different policies bundled together to provide comprehensive coverage.
Types of Contractor Insurance:
-
General Liability Insurance:
- Covers third-party property damage, bodily injury, and other harm during work.
- Example: Accidentally injuring a client while accessing tools.
-
Inland Marine Insurance:
- Covers repair or replacement of business property (tools, equipment) if damaged, lost, or stolen.
- Example: Stolen tools from a job site.
-
Business Owner’s Policy (BOP):
- Combines general liability and commercial property insurance.
- Discounts available for bundled coverage.
-
Commercial Property Insurance:
- Covers business equipment, tools, and buildings against damage from events like weather or fire.
-
Commercial Auto Insurance:
- Covers work vehicles in case of accidents.
- Almost always required for business-owned vehicles.
-
Workers’ Compensation Insurance:
- Covers medical bills and lost wages for work-related injuries.
- Includes employer’s liability insurance for lawsuit expenses.
-
Professional Liability Insurance (Errors and Omissions - E&O):
- Covers mistakes made during professional services.
- Example: Legal fees for missed deadlines.
-
Builders Risk Insurance:
- Covers buildings under construction against damage (fire, theft, vandalism).
-
Commercial Umbrella Insurance:
- Increases liability limits for underlying policies in case of a claim.
-
Surety Bonds:
- Reimburses the customer if the contractor can't fulfill the contract terms.
Cost Factors: Contractor insurance costs vary based on factors like business location, number of employees, type of business, chosen insurance company, and coverage specifics.
Where to Get Contractor Insurance: Several insurance companies offer commercial insurance for contractors. Some options include:
- Next Insurance: Offers tailored coverage with the ability to send digital certificates.
- Thimble: Provides temporary or permanent coverage for various needs.
- Nationwide: Customizable policies, especially suitable for specialty coverage.
- State Farm: Package coverage for artisan and service contractors.
- The Hartford: Offers policy bundles and various coverage options.
Comparing quotes from different providers is recommended to find the best coverage and price for your specific needs. If you have any specific questions or need further details, feel free to ask!
