A Definitive Guide to Contractor Insurance

Written By Charlotte Insurance on February 15, 2022. It has 0 comments.

A Definitive Guide to Contractor Insurance

As a contractor, you’ve got a lot on your plate – bids to put in, contracts to fulfill, subcontractors to hire (or fire). Now add a big storm that rips apart part of an active jobsite or an accident on the road with a company truck.

Accidents like these are more than giant headaches. They cost you time and money.

You can’t prevent accidents from happening, but you can protect yourself with the right insurance policy.

Not sure what that is? Here’s everything you need to know about contractor insurance.

Why You Need Contractor Insurance

Insuring your contractor business is a smart move as a business owner. Disaster can strike a building site at any point. People can get hurt, equipment damaged, and materials destroyed. Contractor insurance protects you financially from those losses.

Depending on the kind of work you’re bidding on and where you’re licensed, certain forms of contractor insurance may even be required. Big corporations and government jobs both tend to require insurance. South Carolina requires some coverage for your contractor license while North Carolina doesn’t. Although cities and counties in NC might require it if you want to bid on one of their jobs.

Who Needs Contractor Insurance

There are many types of contractors who work on new construction and remodels of existing property. Here’s a shortlist of some professionals who definitely need contractor insurance.

  • Residential general contractors
  • Developers
  • Remodelers
  • Light commercial general contractors
  • Artisan/Trade contractors such as:
    • Carpenter
    • Plumber
    • Electrician
    • Roofers
    • Tree surgeon
    • Landscapers
    • Painters
    • Drywaller
    • Plasterer
    • Mason
    • HVAC
    • Iron or steelworker
    • Floor layer
    • Concrete specialist
  • And the list goes on…

If you are a contractor or subcontractor doing business with the public, you’re going to need insurance.

Types of Contractor Insurance

The type of insurance you need as a contractor will depend on the work you do, the potential risks you face, where you work, and how many people work for you.

Here are some of the insurance policies most contractors need.

Contractors General Liability

All business owners need general liability coverage. It’s the most basic business insurance policy you can purchase. General liability insurance protects you when third-parties like customers or vendors get hurt or experience property damage.

Here are a few examples:

  • One of your employees knocks into the customer’s vehicle and dents it (Property Damage)
  • A vendor or subcontractor trips over equipment left in walkways (Bodily Injury)
  • You or someone who works for you says something publicly about another business that’s incorrect and causes them to lose business (Advertising Injury/Defamation)

When you’re responsible for the damage, general liability will pay the claim. It’s also there if the injured party decides to take you to court. Your coverage will help pay legal fees and any settlements.

Builders Risk Policy

A builders risk insurance policy, also known as course of construction (COC) insurance, helps pay for damage or loss to materials, tools, or property while you’re doing the job. The damage covered includes fire, weather-related damage, and vandalism.

Whatever you’re using, as a contractor, on the site that can be labeled material, equipment, or tools can be covered:

  • Building materials
  • Scaffolding
  • Paving
  • Fencing
  • Landscaping
  • Pipes and plumbing fixtures
  • Wires and cables

The builders risk policy is in effect while the project is under construction and the property is an active jobsite. Some policies will extend this time frame beyond the date of completion. Other policies may end coverage if the jobsite is used for its intended purpose even as construction is ongoing.

Commercial Auto Insurance for Contractor Vehicles

Commercial auto insurance isn’t just for contractors with a fleet of trucks. It’s also for one-person operations who use their personal vehicle on the job. Why? Because personal auto insurance won’t cover you when you get in an accident and your truck was being used for professional reasons.

Commercial auto insurance also offers higher liability coverages than standard personal policies, too. You can purchase a policy with the coverages you’re used to from any auto insurance:

  • Liability coverage
  • Comprehensive and collision coverage
  • Medical payments coverage
  • Uninsured/underinsured motorist coverage

Your truck and trailer can be covered, as long as it’s used for business purposes. Here are a few examples of trucks and trailers that need commercial auto insurance:

  • Trucks:
    • Pickup trucks
    • Flatbed trucks
    • Dump trucks
    • Pump trucks
    • Straight trucks
    • Bucket trucks
    • Cement mixers
  • Trailers:
    • Flatbed trailers
    • Tank trailers
    • Pole trailers
    • Dry freight trailers
    • Concession trailers
    • Auto hauler trailers
    • Utility trailers
    • Bulk commodity trailers
    • Transfer boxes

If you use large trucks in your contractor business, you may need commercial truck insurance. It often includes extra coverage for cargo and downtime. Not sure which kind you need? Talk to an independent insurance agent who can help you figure it out.

Completed Operations

Completed operations insurance covers you after the job is over. It’s a good idea to offer some kind of warranty after your work is done, but you should also protect yourself with this policy.

This is different from a maintenance bond. They both have their place on the job, but it’s a completed operations policy that will offer you the most protection.

No one wants to hear from an unhappy homeowner that something has gone wrong. And of course, you don’t want to have to deal with expensive problems.

Completed operations cover you if there’s a malfunction or mistake in your work that results in expensive damage and/or repairs for the property owner. This is a type of liability insurance that helps pay for the damage or repairs and any legal fees or settlements if you’re sued over the problem.

Many insurers offer specific coverage for your trade so you purchase a policy that makes sense for the work you do and the risks you face.

Inland Marine

Inland marine inurance is sometimes known as contractors equipment insurance. It covers your equipment and other property while it’s in transit, in storage, or while being repaired and in someone else’s care.

What equipment is covered?

  • Tools
  • Clothing
  • Supplies
  • Computer equipment
  • Mobile equipment:
    • Forklifts
    • Loaders
    • Cranes
    • Excavators
    • And more

This includes owned equipment as well as the equipment you lease or borrow.

What kind of damage does inland marine insurance cover?

  • Equipment stolen from the jobsite
  • Damage to equipment, tools, and supplies being transported to the jobsite
  • Fire or weather damage to your equipment while its on the jobsite
  • Clean-up and/or debris removal
  • Costs that arise from the job delay caused by the damage

How is this different from a builder’s risk policy? Because it’s inland marine, the damaged equipment doesn’t have to be on the property yet to be covered.

Commercial Property

Whether you work out of a home office as a single contractor or you have an entire building with an office or warehouse for your equipment, you need a commercial property policy.

Commercial property coverage protects your business property when you’re not actively using it on a job site. This includes computer equipment, signage, supplies and materials you store, inventory, and other equipment and tools.

If a storm, fire, or theft occurs at your office/warehouse, you’ll be covered. Commercial property insurance can also include loss of income if the damage means you can’t work for a while.

Professional Liability

As a contractor, you’re not just hired because of the materials you use or how fast you can get the work done. You’re hired because you’re a professional who knows how to do the job. You may recommend specific materials or a building technique. Your value is often about your experience and knowledge.

But anyone can make a mistake. When a contractor makes a professional mistake, the repairs can be costly. Professional liability, also known as errors & omissions (E&O), covers you when you get it wrong.

If the property owner decides to sue because you told them the wrong thing or gave them bad advice, your legal fees and any potential settlements will be paid. E&O can also help pay to fix the problem.

Contract and License Bonds

Bonds are a big part of working as a contractor. They’re not insurance in the standard sense, but they are guarantees for specific aspects of your work. There are multiple types of bonds you may need, depending on the contract.

Contractor Bond: A contractor bond is a guarantee that you’ll comply with any regulations required for your license; it protects whoever you do business with and the general public. It may be required to maintain your license depending on what state you’re licensed in.

Bid Bond: This is your guarantee that your proposal is a serious one and that you can financially support a project if you win the contract. These bonds are often required by large companies and government projects in order to submit your bid.

Performance Bond: A performance bond is your guarantee that you’ll follow all standards as set forth in the contract and that you’ll finish the job as outlined in the contract.

Payment Bond: This bond guarantees you’ll pay suppliers, laborers, and subcontractors for their time, materials, and/or work hired to do.

Warranty/Maintenance Bond: A maintenance bond is your guarantee that your work and materials are covered for a specific length of time after the job is complete. If bad materials or bad workmanship cause problems, it’s taken care of. This is a good bond to give clients peace of mind that they should hire you.

Subdivision Bond: You guarantee to the local government that you’ll develop a property in accordance with any local requirements, ordinances, and guidelines.

Site Improvement Bond: This is the same as a subdivision bond except you’re not developing a property but improving existing structures.

Trade Specific Coverage

The risks a plumber faces aren’t the same risks a general contractor faces. Roofers have different considerations than landscapers do. But all contractor work carries risk – to you, your business, and your clients.

Extra coverage can be added to your general liability policy that makes sense for your business. Instead of choosing one-size-fits-all coverage, you can target your unique risks and protect yourself and your business.

Talk to your independent insurance agent about what may be available based on your trade.

Workers’ Compensation

Workers’ compensation insurance is protection for the people who work for you. In North Carolina, this extends to those who are employed to work for your business entity (LLC, S-Corp, etc). While in South Carolina, this extends to subcontractors, as well.

Workers’ comp pays the medical expenses for employees who are injured or become sick while on the job. It also pays death benefits if someone dies on the job. This is a way to take care of the people who work for you, but it also offers protections for you, as well.

If an injured worker or their family decides to sue, workers compensation covers your legal fees and any potential settlement.

Umbrella Liability

Umbrella liability insurance is underutilized protection for businesses with lots of liability, including contractors. Injured workers, damaged equipment, stolen materials, damage to the property – the list of potential risks goes on and on.

The liability coverage you purchase will pay covered perils but only up to your policy limit. What happens if a claim is bigger than your policy? Without umbrella liability, you have to pay the difference out of pocket.

But with umbrella coverage, you get a financial cushion during larger than life claims. It pays whatever is left on a big claim (up to the policy limit). It’s an affordable buffer to add to your liability policies. An extra million dollars in umbrella coverage costs much less than increasing your liability coverage limits to levels that don’t make sense for most of your claims.

And it works just like an umbrella by covering you –  only when you need it.

Is Contractors Insurance Required by Law?

Whether or not contractor’s insurance is required for you depends on where you’re licensed and what kind of insurance you need. North Carolina requirements differ from South Carolina. But if you’re licensed in both states, or want to be at some point, you need to know the rules for both.

Commercial auto insurance is required for any contractor using a vehicle for business purposes. This is true regardless of which state you work in. Personal auto insurance doesn’t cover claims when the vehicle was being used for professional reasons.

Contractor license bonds are not required in North Carolina, but they are required in South Carolina.

For all other bonds, cities and counties have their own requirements for bonds if you’re bidding on a job or doing work on city or county property.

Workers’ compensation is required by law for business entities with employees. In NC, you must purchase coverage if you have three or more employees, but subcontractors don’t count in that number.  In SC, you must carry workers’ compensation if your business entity employs four or more people and/or if your subcontractors employ four or more people.

Why? From the SC Workers Compensation Commission, “A general contractor is liable for their statutory employees in the event their subcontractors do not maintain their own workers’ compensation insurance coverage.”

This means you can require your subcontractors to carry workers compensation if they want to work with you.

How Much Does Contractor Insurance Cost?

The cost of contractor insurance depends on a lot of factors. Here are just a few:

  • Type of insurance coverage you purchase
  • Policy limits and deductible for the policy
  • Credit history of the business or policyholder
  • Length of experience as a contractor: In some cases, newer contractors may pay more than more established contractors.
  • Location of the business or the project being insured
  • Size of the project or business being insured
  • Number of claims filed: This is especially true in workers’ comp insurance but can impact other forms of coverage.

Not all policies are priced the same across different insurers. It’s important to look at multiple quotes for coverage to find best coverage at a price that works for your business.

Working with an independent insurance agency gives you access to multiple insurers. This means you’ll get competitive offers and lets you more easily customize your coverage to suit your needs as a contractor.

In Conclusion…

Contractor insurance is a wise financial move as a business owner, but it can also be what helps you get more lucrative contracts and grow your business. Here at Charlotte Insurance, we work with contractors to help protect your business, with an understanding of your unique trade and the risks you face.

Contact us today to discuss your insurance options. We can provide free estimates, answer your questions, and make sure you understand exactly what’s covered under your policy.

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