What Kinds of Insurance Do Contractors Need?
Construction sites are full of risks. From heavy equipment to dangerous machinery operated by employees, there are countless opportunities for people to suffer injuries and for properties to sustain damage. In the event of something going awry, it could be you who will be held liable. Without the proper coverage, this can potentially mean financial ruin and the end of your business. However, with adequate insurance, you will be able to handle the claim and resume business as usual.
If you are a contractor wondering what insurance you need and what you don’t, you have come to the right place.
Essential Coverages for Contractors
- General Liability: General liability insurance is one of the first types of insurances contractors consider and is one of the most common. Should you be found legally responsible for bodily injury or property damage to a third party, general liability can help to cover the costs associated with claim. This includes legal fees, monetary damages awarded to the injured third party, and whatever financial losses you incur while participating in your defense. Suppose you leave a ladder out at a client’s house and they slip and fall over it. Your general liability policy could handle claims that come out of that incident.
- Workers’ Compensation: Workers’ compensation insurance is essential, especially in the construction industry. Employees routinely perform dangerous tasks while using dangerous equipment, and one misstep can land them in the hospital. With workers’ compensation insurance, their medical expenses and lost wages can be covered by your insurer. This helps give your employees peace of mind that they will be protected if they are injured on the job.
- Commercial Property Insurance/Inland Marine Insurance: General liability protects the property of a third party, but what about your property? If you have a designated workshop, you will need to purchase a commercial property insurance to protect the structure and its contents. Property insurance, however, does not cover tools and materials that you move around to and from clients’ homes. Work materials and tools are protected under inland marine insurance and essentially acts as commercial property insurance.
- Professional Liability: Professional liability insurance provides coverage for construction errors, including the mistakes made by the contractor and third parties hired by the contract (engineers, vendors, etc.). Design and build contractors generally purchase this type of insurance, however, they are not the only contractors who might benefit from its coverage.
- Commercial Auto Insurance: Commercial auto insurance functions the same way as regular auto insurance, except instead of protecting your personal vehicle, it offers coverage on your professional vehicle. If you transport tools or employees, you need commercial auto insurance. Likewise, if you need special equipment like excavators, you need to get it commercially insured.
- Contractors Pollution Insurance: Nowadays there are strict environmental laws builders are expected to follow. Contractors pollution insurance can protect you in the event that you violate these laws — for example, irresponsibly dispose of chemicals — and find yourself sued by a third party.
- Umbrella/Excess Insurance: Umbrella insurance is an added layer of protection on top of your other policies. If a claim is filed and it exceeds the limits of your coverage, umbrella insurance can step in and cover the remainder. In an age of gargantuan settlements, umbrella insurance is crucial.
While insurance is your best line of defense against unforeseen accidents, it should not be the only measure of protection you implement. Practicing effective risk management helps to prevent an incident from happening in the first place. Approach risk proactively — have your insurance in place as a safeguard but do what you can to reduce risk in daily operations. Consult with your risk manager, legal advisor or insurance professional as to your individual business insurance needs.