Coverage for Contractors: What It Is and Why It Matters
Fri Mar 17 2023
Everything we know in our modern society is thanks to the hard work of skilled laborers. Across many industries, contracted workers and small business owners contribute to private and public projects, such as government-funded bridges to locally owned movie theaters. Being a craftsman in electrical work, plumbing, heating, engineering, residential development, or any number of other specialties is highly desirable around the world. The hard work and high pay in this industry also comes with a great deal of risk, especially with specialized equipment, subcontractors, and commercial vehicles thrown into the mix. As a contractor, you want to make sure you have everything in your operation properly covered to safeguard your work and keep your small business going strong.
What Key Insurance Coverages Do I Need as a Contractor?
Coverage options will vary depending on your industry, but overall the key areas are the same for every contractor. This is because there are some similar concerns present for every industry, so it is important to opt for the main coverages to make sure you are fully covered. General Liability is a critical coverage that every small business owner must have to protect their own interests. In the event you accidentally cause damage to someone else’s property or injury to someone on a job site, General Liability will cover the costs to make the situation right. This could be repair expenses for a neighboring building that was damaged, medical expenses for a passer-by, or a replacement vehicle that was totaled during a demolition, among many other scenarios. You always want to make sure you have General Liability to cover you against these potential risks.
Tools and equipment are essential for most every jobsite as a contractor, no matter your specialty. Your insurance policy should have a separate coverage line for these items to ensure you can properly cover them in the event they are damaged, lost, or stolen. When opting for this coverage, make sure you select Replacement Cost coverage whenever possible so you can fully cover the cost to replace the item. Actual Cash Value will cover your tools and equipment with depreciation factored in, meaning the payout you receive may not be enough to actually replace your things. Keep in mind, this coverage does not apply to normal wear and tear from use on the job. Anything happening over a prolonged period of time that is part of its natural lifecycle is not something insurance protects.
Finally, if you use your vehicle for business purposes aside from commuting, you will need to have Commercial Auto Insurance to properly protect yourself. Insurance companies draw a firm line in the sand when it comes to covering vehicle based on how they are used. If you use a personal vehicle to haul lumber to a jobsite and rear-end someone, you may be at risk of having your insurance claim denied because the car isn’t covered for business purposes. Make sure to communicate all uses of your vehicle to your insurance agent and opt for Commercial Auto Insurance when it is necessary. This goes for your hired vehicles and non-owned vehicles as well, such as those rented for transportation or used by employees. By carrying the right type of Auto Insurance, you can ensure accidents or injuries caused by your cars during the course of work are covered.
Why Do I Need to Have a License and Bond as a Contractor?
Insurance isn’t the only way you can protect yourself as a contractor. Being licensed is a marketable tool you can use to further promote your business and indicate your experience level. Insurance Bonds help instill more confidence in your work and projects by safeguarding your clients’ financial investments when choosing you for the job. An Insurance Bond is for a set amount of money to reimburse your customer in the event you are unable to complete the agreed work. For example, if you are remodeling a hair stylist’s salon and abandon the project for personal reasons, the hair stylist can file against your Insurance Bond to secure a new contractor for the work. While no one likes to think of themselves flaking or bailing on work, life is sometimes out of our control. It is always best to have an Insurance Bond for your work to protect yourself and your clients’ interests.
How Do I Cover Subcontractors versus Employees?
Hiring help is a cumbersome process all in itself, so once that is done you want to make sure you and your new crew are properly protected. Contracted work is often for a set period of time, sometimes for just a few weeks or months. For those projects, it isn’t uncommon to opt for subcontractors as opposed to hiring if you have gaps in work or only need help for a short duration. Subcontractors that you hire should always come with their own Small Business Insurance and Insurance Bonds to show they are protecting their interests. Unfortunately, not every policy will cover subcontractors, meaning the work they do for you could leave you liable if something goes wrong. By ensuring they have their own policy, you won’t be held personally responsible for damages or injuries their work causes. Even if excluded on your policy, you will still need to disclose that you hire subcontractors to work for you when working with your insurance agent so that the insurance company is aware of the additional risks present in your business.
With employees, your insurance policy will be able to provide direct coverage for the work they do under your business. You will need to indicate how many employees you have and the average payroll they cost in order to properly cover yourself and your staff. Additionally, you will want to consider Employment Practices Liability in the event an employment-related claim occurs with one of your employees. This could be wrongful termination, discrimination, sexual harassment, or a number of other employment issues. By carrying this coverage, you can safeguard your business against these claims financially to cover legal expenses and payouts, even if the claim is groundless and dismissed.
Cover Yourself as a Contractor with Nicholson & Associates
Getting the right insurance coverage as a contractor can still be overwhelming, which is why we are here to help. Contact your local Nicholson & Associates office and one of our licensed commercial agents can help you find the best option for you and your business. With our top insurance carriers, various bond options, and exceptional customer service, you can trust that your contracted operations are properly covered.