7 Reasons Why You Need Contractor Insurance

Read Time:8 Minute, 57 Second

Business insurance is important to the success of any company. But for companies that operate within the construction industry, it’s essential.

As a contractor, the chances of something going wrong are far greater than for your average business. This is a high-risk industry by nature and having coverage for all kinds of incidents, accidents, or eventualities is critical.

Learn how contractor insurance will alleviate your worries as a business owner and why you should never be without it.

What is Business and Contractor Insurance?

As a contractor, you’re most likely running a small business where most of your clients purchase your services via a contract or freelance agreement. The last thing that the owner of a small business or a freelance contractor wants is for their work to cause damage to a third party. And in turn, result in huge costs for the company. Causing these kinds of losses to a third party while carrying out work stipulated in a contract might lead to the financial downfall of your business.

Contractor insurance liability refers to the cover that will keep your business financially protected in the event that you cause loss or damage to a third party. Many construction companies offer their services via contracted work. This makes contractor insurance particularly valuable to the industry.

So, what does contractor insurance cover?

Generally, because contractor insurance is so popular in—but is not limited to—the construction industry, the instances of liability that your company will be protected from mainly relate to property damage and bodily injury caused by your business.

A major problem for independent contractors and freelance workers is financial stability. Making sound financial decisions and being savvy in the marketplace is one way to secure the long-term success of your business.

The following reasons should persuade you to invest in contractor insurance and protect yourself from liability arising within your line of work.

It May Protect You from Going Bankrupt

In today’s economy where instability seems commonplace, there are many reasons why your business might go bankrupt. The unpredictability of the past few years has shown us the importance of protecting what you have. Even if you believe that there are no real threats on the horizon.

Anything can happen at any time. The devastating effects that the pandemic had on small businesses and independent contractors in 2020 were proof of this.

For contractors working in construction, plumbing, or generally providing a service to a third party, it is essential that they protect themselves should something unexpectedly go wrong. This is especially important in the construction industry where the chances of risk and loss are particularly high.

Certain Forms of Contractor Insurance Are Legally Required

For some contractors, having insurance for specific cover is a legal requirement. Once again, this mainly applies to companies in industries such as construction where there are many moving parts and people required to complete a project. The law, however, is on the side of the contractors because the legislature understands the unprecedented damage and loss that can be caused where no contractor liability insurance has been obtained. In effect, the law is trying to help contractors protect themselves from unnecessary losses that may end up ruining their businesses financially.

In general, the law requires a business that employs workers to provide cover for injury in the workplace, medical cover, workers’ comp, and unemployment insurance, amongst other criteria. Legal requirements differ from state to state. The onus is on the contractor to have the correct cover in place and to make workers’ compensation payments.

Improves Your Credibility

Having the appropriate insurance coverage will make your business look far more reliable and trustworthy to third parties who’re considering using your services. It will provide clients with peace of mind that they will be protected against damages and that their claims will be financially satisfied should something go wrong.

Once again, this is particularly true in the construction industry. Investors often want assurances that they will be protected in high-risk situations where damage might occur. Having comprehensive contractor insurance will show clients you’re a safe bet and that you can provide compensation should a loss occur.

Your Equipment And Machinery Can Be Protected

For many people working as contractors or freelancers, much of the equipment they use to complete their projects are self-financed. For businesses that operate in the construction industry, this is particularly true. And the price of construction machinery, vehicles, and equipment can cost huge sums of money

The fact that much of the above-mentioned equipment is completely self-financed means that it’s just common sense to make sure that you’ll be compensated and protected should damage occur while carrying out contractual duties.

Normal contractor liability insurance will not provide cover for the equipment. However, many insurance providers understand the costs and risks that come with working as an independent contractor. They often make provision for this by providing optional add-on clauses that would provide comprehensive protection of such machinery should something go wrong. Often, this will increase the rate of the insurance premium. But the added liability protection is potentially invaluable in the long run.

It Makes Your Business More Attractive To Potential Employees

The most valuable asset to any modern-day company is not the machinery and equipment used to carry out tasks. It’s not the number of clients that you have. It’s the labor and workforce of the business.

Without workers and without employees there is no business. Employees will be attracted to a company that can provide them with long-term assurances about their jobs and the compensation they might receive in instances of damage.

Once again, this is particularly applicable in the construction context, as often it will be the employees on the ground that cause damage and potential loss. Knowing that they will be covered from third-party liability will make them feel safe and secure within their employment structure.

Protects Your Company From Lawsuits

One of the main threats that independent contractors face is an all-encompassing lawsuit that could financially ruin a company. In many instances where damage has occurred to a third party, whether it be property damage or bodily injury, the monetary claim will mirror the amount of loss caused by said damage. Where the damage is huge, the financial implications might be unrecoverable for a small business or contractor.

General contractor insurance will provide excellent cover for unfortunate situations where a lawsuit is leveled against the company. Not only will it cover the losses the claim is for, but it will cover the often exorbitant legal costs associated with a lawsuit too. This is simply another instance that proves how obtaining insurance coverage might protect your business from financial ruin.

Gives You Peace of Mind

One of the most valuable assets for any independent company is feeling free from potential financial claims that it simply won’t be able to satisfy. Contractor liability insurance coverage will provide business owners with a strong sense of security and peace of mind. This will allow them to take on projects and sign contracts confidently, knowing that they are protected in the event of damage and resultant loss.

Contractors, especially in industries such as construction, work in high-risk situations that can cause a great deal of worry and stress. Knowing that you are covered by a watertight contractor insurance policy will give your business the freedom to carry out its obligations in a safe manner.

Types of Contractor Insurance

As with any other industry, there is a number of different types of contractor insurance to choose from. Let’s look at what’s included in a few different types of contractor insurance to help you decide which is best for your business.

Public liability insurance

Public liability (PL) insurance protects you and your business against liabilities for injury to third parties or their property. This is an important type of insurance to take out as a contractor since you will most likely be performing your contract work at different sites. Should you be responsible for causing injuries or damaging property or equipment, public liability will cover your company if a claim is made against you.

Employer’s liability insurance

As an employer, employer’s liability (EL) insurance protects you against claims made by your employees if they become injured or sick through work. While public liability insurance is generally voluntary, employers’ liability insurance is compulsory. This is because employers are responsible for the health and safety of their employees while at work.

Professional indemnity insurance

Professional indemnity insurance provides cover to your company for losses that are caused by an error in the professional services you provide. If your client files a claim against you because of problems with the contractor work you have done for them, professional indemnity insurance will help protect your business. For example, you may give advice or be responsible for the design of a building site. If you make a mistake in your work for a client that causes them financial or reputational loss, professional indemnity insurance protects you and your business from the costs of compensating your client.

How Much Does Contractor Insurance Usually Cost?

The cost of liability coverage will depend on a myriad of factors. Therefore, the cost of an insurance policy will differ from business to business. Factors such as the likelihood of a loss occurring, the risk of the insurance policy being utilized, the amount of cover provided (such as all-risk insurance), and the length and time that your business has been operating will all influence the rate your company pays.

It’s advisable that businesses consult more than one insurance broker to find a policy that best suits their needs. Insurance rates are never set in stone and negotiations might be a smart way to obtain cover at the best possible prices.

For example, a construction company will undoubtedly have to pay a higher rate than a freelance writer. The risks involved in their day-to-day business and the possible costs of damage far exceed that of the latter.

The Bottom Line

There are many reasons for an independent contractor or business to obtain contractor insurance. However, all these reasons are easily summed up in one simple statement: contractor insurance will protect the long-term future and ambitions of your business and protect you from unrecoverable financial loss.

With this in mind, there really is nothing more you need to know on the topic. You simply need to ensure that you’ve got the right coverage in place. Once that’s done, you can focus on other important areas that will bring success to your business.