There is a wealth of insurance coverage plans for you to choose from as a contractor or tradesperson. Even though signing up may be expensive, insurance will cover you from racking up even greater expenses for things like medical bills, property damages, and legal fees.
To get a better sense of what insurance options are available to you, here’s a list of what insurance options there are, and what they cover:
General Liability Insurance
General liability insurance (GLI) is used for coverage when people that are not employees or affiliated with your business are injured on the work site. It also covers any damage that is made to the property by an employee. Additionally, GLI will cover legal fees if the insurer is sued due to any of the incidents listed above.
For example, if a UPS driver trips on a wire that you left on the floor of a house that you were working on, then general liability insurance covers their medical bills. GLI would also cover a situation where an employee accidentally breaks a window while propping up a ladder.
Every contractor should have GLI. In many states, it’s required to be licensed.
There’s also a downsized version of GLI called Public Liability Insurance (PLI), which essentially accounts for everything GLI does except for property damage. PLI is an option of liability insurance for smaller contractors that can’t afford GLI.
License bonds are a form of surety bond between the contractor, hiring party (usually the homeowner), and surety bond company that backs the bond. Surety bonds are essentially agreements made between multiple parties that a certain task will be completed according to the specifications of an agreement of contract.
License bonds are a way to guarantee that a contractor will complete a project under the appropriate safety and design agreements specified by a contract. If they do not, then their client has the right to file a lawsuit against them.
Workers’ compensation (workers’ comp) is another top requirement for any contractor that hires other people, as it compensates employees who become injured on the job for their medical expenses, rehab costs, and partial wage replacement.
This policy also protects contractors from being sued by employees who were injured, or from their family members.
While workers’ comp isn’t usually used for smaller scale projects like new home construction projects, larger commercial operations may require it. Depending on the size of your project, it might be a worthwhile investment in case your client makes it a requirement for you to have this coverage.
Errors and Omissions/Professional Liability Insurance
Errors and Omissions (E&O) Insurance, sometimes called Professional Liability Insurance, covers any costs that come from fixing shoddy workmanship, or work that doesn’t meet necessary safety quotas. In more specific terms, it protects contractors from any third-party claims of error and negligence in a completed project.
If, for example, a contractor installs a new roof in November that caves in after a particularly snowy January, then E&O insurance would cover the labor and materials needed to repair the roof. By comparison, general liability insurance would be used to cover the damage that was done to the house.
Builder’s Risk Insurance
Builder’s risk insurance covers any damage that is made to a contractor’s materials or property while construction is ongoing. Unlike general liability insurance, it does not cover a homeowner’s property being damaged.
Builder’s risk insurance is for the contractor’s assets such as a building that is in the process of being built, or any other property that exists on the worksite and is owned by the contractor. Think, for example, of a house that is in mid-construction, which is suddenly caught in a vicious hailstorm and falls apart. This policy would also be used in case any property was damaged from a fire, theft, vandalism or lightning.
Usually, builder’s risk insurance will last from 6 months to a year before expiring, with the option to renew after that time period.
Voluntary Property Damage
If you or an employee damages a piece of property that belongs to the homeowner during the construction process, then voluntary property damage insurance protects the cost of replacing the property. An example of this would be if you shattered a mirror while working inside, or broke the homeowner’s precariously-placed guitar.
Usually the limit for this insurance policy is up to $25,000 per occurrence, which means that the insurance company will only pay for up to $25,000 in damages regarding a particular incident. The minimum deductible, meanwhile, is usually $250, so you would usually pay the insurance company at least $250 for the damages.
Loss of Income Insurance
Loss of income insurance is usually reserved for smaller contractors or subcontractors working on their own. It covers a certain percentage of a worker’s income in case there are any stoppages in work, whether that be from natural disasters or if the worker falls sick, since most independent contractors don’t have the option of taking sick leave.
Often, loss of income insurance usually covers up to 75% of the contractors’ income.
Contractual Liability Insurance
Contracts for larger investors are often drafted up by a team of lawyers. For contractors who are unfamiliar with legal jargon an the complexities that are within most contract clauses, there may be hidden responsibilities in a contract that they are unaware of.
Contractual liability insurance protects contractors from incurring costs as a result from any responsibility or work that may have been hidden within the language of a contract, particularly if the contract was difficult to read. This policy is less common because it is usually reserved for larger-scale projects that are more susceptible to legal disputes.
Commercial Vehicle Insurance
Commercial vehicle insurance sounds exactly like what it covers - any vehicles that are owned and operated by the contractor. This would be for trucks, vans, cement mixers, and any other vehicle that you might be using on a project site.
Common for any contractor operating with a large set of materials, this policy covers tools that are damaged, lost, or stolen during a project. Be careful, though. Tool insurance applies only to tools that are being kept in a safe space, such as a locked toolbox or cabinet. Sometimes an insurance company may offer coverage for damage or theft on tools that are left out during a project, called “open air” tools, but this type of agreement is harder to come by.
There is also the less common option of getting portable items insurance, which covers tools that contractors may carry around for work and not lock up. This is more often used for technology like work phones, GPS systems, or laptops.
Contractors’ Pollution Insurance
You might think that any damage caused by pollution that comes up from the work done on a project would be included in your general liability insurance, but that isn’t the case.
Instead, contractors’ pollution insurance covers any injury, damage, or clean up that is incurred to a third party during a project. An example of this would be if you are hammering into a wall, and accidentally leak asbestos out into the house. The cleanup and any damages that are caused by this would be covered by this insurance.
As environmental awareness continues to grow, there is a greater need for contractors to have pollution insurance. Here is a more comprehensive guide on what is covered under these plans.
Specific for contractors who work in roofing, this niche insurance policy is designed to take care of the costs incurred by a physical injury and property damage that comes specifically from roofing.
As with many of these policies, roofers insurance can also cover any follow-up legal costs that are a result of the damage.
Inland Marine Insurance
This insurance policy is best reserved for contractors who travel often. Inland marine insurance is for coverage of tools and equipment that are damaged or lost while being transported or stored.
If you are transporting equipment, computers, or cargo to projects for example, this would cover any theft or damages that could come from natural causes.
Inland marine insurance can be available as a separate policy, or it can be included in an existing business insurance policy.
There are loads of insurance options for you to choose from as a contractor and trades worker. You probably won’t be able to afford them all, and that is normal. Instead, try prioritizing them in the order of the list we just provided, starting with general liability insurance and moving down the list. If not, talk to an insurance broker to get their expert advice.