Being a contractor, you must have come across situations when you regretted not having insurance. Be it bonding, compensation, general liability, or bonding insurance, having insurance will protect your business from multiple aspects.

A contractor insurance policy is sometimes required for the companies you are subcontracting and is a prerequisite for construction and licensing bonds.

In a construction business, each of the contractors has different insurance policies. Each business is unique, and so is coverage. As a contractor, you need to know the basics of your business and what your contractor business needs to function optimally.

So, to help you better, we have drafted a complete guide to insurance for contractors that will help to understand contractor insurance, the different types of contractor insurance, and the cost of contractor insurance.

What is Contractor Insurance?

Contactor insurance is a package of insurance policies that covers your business from financial losses if somebody registers a claim against your business or goes through some traumatic event.

Contractors need general liability insurance as well as inland marine insurance. These are both the most common types of insurance policies that contractors require.

However, the coverage required for your business depends on the size of your business, the state of your business location, and the kind of work that your business is involved in.

Contractor insurance is essential in situations such as:

Accidental damage to customer’s belongings or homes while repairing appliances
Materials got stolen or damaged beyond repair
Customer files a lawsuit against because of faulty work or accidents

What is Covered Under Contractor Insurance?

Depending on your business size, contractor insurance will vary. However, the most common types of contractor insurance that your business might need are here.

General Liability Insurance for Contractors:

Business liability insurance for property damage or third-party bodily injury. Your general contractor might require you to cover general liability insurance for protecting your business and others in the event of lawsuits.

General liability insurance is also required for covering unforeseen expenses. For example, you spilled paint on the customer’s vintage furniture or freakishly expensive rug.

The customer might be suing you for the cost of cleaning the fancy piece or for the full amount if the paint can be removed. General liability insurance will help you to cover the whole or partial expense.

Inland Marine Insurance:

When being transported, business properties get damaged or stolen; inland marine insurance will help cover the cost of repair or replacement of the items. The name of the insurance could confuse you as you might wonder, “why would you need marine insurance when you are running a contractor business.”

Earlier, moving heavy pieces of equipment from one place to another was done via ships. Hence the name, marine insurance. In marine insurance, the coverage is not just limited to moving goods but also covers the contractor’s equipment and riggers.

Regardless of what kind of contractor business you are involved in, you need to have marine insurance. As a contractor, you will always need to move tools, equipment, and supplies from one place to another.

General business insurance covers stolen items when the item gets stolen from the worksite and not during transportation.

However, in marine insurance, the cost will be covered even if the equipment gets stolen from the back of your truck while you are waiting at a gas station for a refill.

Coverage, known as builder’s risk insurance, is also a part of the inland marine policy for buildings still under construction.

Builder’s risk insurance is based on a project or a blanked master program.

Surety Bonds or Contractor License Bonds:

A few cities require contractors to obtain permit bonds and licenses to ensure that the customer receives completed work and services as promised.

A legally binding contract will help the contractor business owner pay for all the material and all the labor required for completing the business and not leave the customer holding the bill. Most contractor businesses are required to have surety bonds by the municipalities and payment bonds for foreseeing their financial interest in the contract.

A few businesses will also require private projects for anticipating the investment required in the project. Being bonded guarantees that your company is financially capable of performing the required amount of work.

Worker’s Compensation Insurance:

Most of the states require businesses to hold a worker’s compensation insurance for protecting employees from medical expenses and lost wages which can result in job-related injuries.

Worker’s compensation insurance also helps businesses stay protected from any lawsuits related to injuries. In addition, premiums are dictated by the states, which are potentially lower than your company’s cost.

The best way is to lower the experience modification factor, which is a factor calculated by the state.

It will be needed to improve the safety of your business and, at the same time, lower the numbers and severity of the injury claims.

Commercial Auto Insurance:

Even if you don’t have a large fleet of vehicles working for your contractor business, it is still essential insurance that you should have.

Using a private vehicle for personal usage for business could create potential coverage gaps. However, there are plenty of ways to cover that gap. The best choice is to work around it. However, it is always suggested to title the vehicle under the company’s name and own a commercial auto policy.

Commercial auto insurance can range from trucks to cars and even larger vehicles such as tractor-trailers, dump trucks, or cement trucks.

The most general theme is to have it licensed for road usage in the state where the vehicle operates. It should only be then put under the commercial auto policy.

However, there is a rule that the yard truck should never leave the operation premises.

Commercial Property Insurance:

Having an ‘act of god’ insurance. For example, if your business property gets damaged by weather events, accidents, or other hazards.

For example, a fire that destroyed your inventory or machinery. It would be covered under commercial property insurance.

Professional Liability Insurance:

Personal liability insurance is required if your business has oversights or made mistakes while performing a service, or there is a breach of contract such as failure to deliver the service within the promised time, or there is professional negligence.

If your client sues you for missing a deadline on a project, professional liability insurance will cover the settlement costs and the legal cost.

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