What Kinds of Insurance Coverage Do Contractors Need?

1. General Liability: General liability insurance is one of the most common and first types of insurance contractors consider. Should you be found legally responsible for bodily injury or property damage to a third party, general liability insurance can help to cover the costs associated with claim. This includes legal fees, monetary damages awarded to the injured third party, and other financial losses you incur while participating in your defense, up to the policy limit. 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.
2. Workers’ Compensation: Workers’ compensation insurance is essential, especially in the construction industry. Employees routinely perform difficult 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.
3. Commercial Property Insurance/Inland Marine Insurance: General liability protects the property of a third party, but what about your own property? If you have a designated workshop, you will need to purchase a commercial property insurance to protect the structure and its contents. Even if you don’t own the building, you want to insure business personal property such as office furniture. 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.
4. 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 could benefit from its coverage.
5. 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 these types of vehicles commercially insured.
6. Contractors Pollution Insurance: There are strict environmental laws builders are expected to follow. Contractors pollution insurance can protect you in the event that in the course of your work you violate these laws — for example, accidental disposal of chemicals — and find yourself sued by a third party.
7. Excess Insurance: Excess 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 primary coverage, such as your general liability or auto liability policy, excess insurance can step in and cover the remainder up to the policy limit. In an age of catastrophic losses and large settlements, excess 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 management 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.