What Specific Insurance Policies Do Local Contractors Need to Operate?


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If you are starting off as an independent contractor or someone who is looking to hire one, this article is for you.

No matter how small a contractor business or where it operates from, getting certain types of insurance policies is mandated by local and state laws. There are also these other insurance policies that extremely good to have and can save a company or an individual from bankruptcy induced by certain risks. Lastly, there are those policies that would depend on the nature of the business, assets, and other details.

Policies that Contractors Must Have by Law

There are insurance policies that contractors need as they are mandated by law. Operating without these insurance policies would attract serious fines and sanctions.

Workers’ Compensation: Even if a contractor firm employs a single employee, it has to get workers’ comp. There are no two ways about it as it can lead to serious repercussions if an employee is found to be not covered by this policy. A workers’ compensation policy pays compensation if a worker gets injured during work hours. Injured workers also get paid sick leaves which are covered by the policy to recover from the accident.

Commercial Auto Liability Insurance: Almost all contractors arrive at their workplace using a truck or a car. Certain contractors also need specialized trucks. For instance, roofing contractors need custom trucks with special shelves to store their pneumatic equipment and ladder. Getting a commercial auto liability coverage to cover the cost of injury or death caused by the vehicle is required by law. Hence, getting an auto liability insurance is a must for a contractor.

Why General Liability is Also a Must Have Policy?

A general liability policy is often not mandated by law, but it’s almost impossible to get projects or to be taken seriously as a reputable contractor without one. There are some states where both independent contractors and contractors firms need to get general liability coverage by law. However, that does not apply to all states.

What Risks Are Covered by General Liability Policies?

Customer Injuries

Damage to Customer Property

Lawsuit Stemming from Damage or Injury

Advertising Harm Caused to Clients

Why Contractors Need General Liability Just to Operate?

While there might not be state laws forcing a contractor to get general liability, bagging a project without one can be difficult. Certain industries have strict policies regarding hiring independent contractors and having general liability coverage is probably one of the most common mandates.

Independent contractors may even find it difficult to get projects from homeowners. A lot of regular customers want their contractors to cover the cost of damages if something happens.

Lastly, having a general liability insurance cover gives you additional talking points and can help you secure a project by fortifying customer confidence.

Considering the general liability insurance cost for contractors which is often as low as $29 per month for low-risk contractors such as electricians, the benefits of getting a policy greatly outweigh the little money that would get saved not getting one.

Do Contractors Need Errors and Omissions Insurance?

A lot of people think that E&O insurance is synonymous with general liability insurance. That’s not the case, these are two very different policies covering different risks.

General liability protects contractors from claims resulting from damage to the client’s property. However, it does not cover the cost of redoing the work or damage caused to the contractor’s equipment or assets. E&O covers the cost of repair of the contractor’s property and the cost of repairing faulty installations.

Here’s an example.

An electrician installs faulty wiring which causes a fire. The fire damage and the cost of covering the injuries that may have occurred is covered by general liability coverage.

However, replacing the electrical work and redoing the project again is covered by E&O insurance.

Any installation work that results in the damage of any property owned by the contractor firm is covered by E&O insurance.

Errors and Omissions insurance is a must for contractors who have AMCs or use expensive equipment that can get damaged due to negligence.

What is CAR or Contractors’ All Risk insurance?

CAR or Contractors’ All Risk insurance is not a standard insurance policy and it can mean different coverages for different insurance providers. Much like general liability, it covers damage to property and third-party injuries. It also covers injuries that may happen to subcontractors who are present at the site.

Depending on the terms of the general liability cover, there may not be a need to get an All Risk insurance.

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