As a small contractor, you may be self-employed or only have a couple of employees working beneath you. Regardless of your situation, it’s important to know the ins and outs of what you need as far as insurance to make sure you’re covered in every situation. While there are some variances depending on your state’s licensing requirements, we’ll offer some general rules to help serve as a guide in finding out what insurance you need. Today we’ll talk about workers’ compensation and general liability insurance to better understand what they are and whether or not your business needs them.
What is Workers’ Compensation Insurance?
Workers’ compensation insurance is employer provided insurance that provides state-required benefits for employees who suffer an injury, illness or death caused by work. The coverage generally provides for medical care, temporary and permanent disability benefits, job displacement benefits and death benefit payments to a spouse and dependents. The other important component to worker’s compensation is that it provides coverage for the employer against “third-party over suits”. These suits occur when an employee attempts to sue a third party (for example, the manufacturer of a saw they were using on your job site) and in turn the manufacturer tries to sue you, the employer.
Do I Need Workers’ Comp Insurance as a Small Contractor?
In general, if you have employees on payroll you cannot get a waiver to opt them out of insurance. For contractors who are self-employed, however, most states will allow you to get a waiver to exclude themselves from workers’ compensation. Texas is the only state currently that does not mandate workers’ comp. It’s important to do some research for your state’s specific laws, though, as some states have different rules for workers defined specifically as “independent contractors” that will allow them to provide a waiver to their employer that exempts the hiring contractor from workers’ compensation responsibility. The National Federation of Independent Businesses (NFIB) has a state by state breakdown of Workers’ Compensation Law by state here.
What is General Liability Insurance?
General liability insurance provides coverage for injuries of employees or customers, property damage, and lawsuits related to both. The reason many contractors pay for a general liability plan is to protect their business. In the case of damage or injury, a general liability policy protects you from having to pay those expenses out of pocket.
Do I Need General Liability Insurance as a Small Contractor?
Many contractors go without general liability insurance because they believe it’s too expensive. In reality, it’s not that expensive if you do your homework. According to Insureon, the average annual cost of a $1/$2 million-dollar policy is only $982. That’s only $81.83 per month. This price can often be even lowered by shopping around, reducing the policy limit, bundling policies, managing your risks (training your employees and subcontractors), and paying your full premium upfront. Some contractors can get general liability insurance for $500 or less per year.
There are some additional benefits to having a general liability policy as well, according to Kimberlee Leonard, an insurance analyst at FitSmallBusiness.com,“By having a general liability policy in place, the contractor is able to attract higher paying clients who only work with insured companies. It also opens the door for sub-contract work where a certificate of insurance is required by a general contractor or even a major client such as a school district for work.”
If you’re a small contractor in the following industries, you may want to consider the benefits of a general liability policy.
- Air conditioning
- Appliance repair
- Concrete or paving
- Door installation and repair
- Drywall installation and repair
- Electrical work
- Fence installation and repair
- Flooring installation
- Swimming pool and hot tub maintenance and repair
- Tile and stone work
- Window installation and repair