By not understanding contractor’s insurance, business owners are putting themselves and their employees at risk. There are several types of insurance policies available for contractors but not all of them are created equal. There are some policies that are vital for contractors and others that could be a waste of money. It is important to look at the different policies and look at what you need covered compared to what they cover. By understanding the insurance available, you will know what is covered and what is excluded, and it will allow you to see the gaps in your policies that can then be covered with other types of insurance if necessary. Risk management is an important part of operations and for contractors there are four main types of insurance, Commercial General Liability, Auto Liability, Builder’s Risk, and Worker’s Compensation. Keep reading to learn about their coverage, why they are important, questions you should be asking, and how not having certain coverage could put owners at risk.
Commercial General Liability
Most, if not all contractors carry Commercial General Liability (CGL) insurance because it covers many accidents that can happen on construction sites. Commercial General Liability insurance is a broad insurance policy that provides coverage to businesses for bodily injuries, personal injuries, and property damage that is caused by the business’s operations, products, or injury that occurs on the business’s premises. There are many reasons why having Commercial General Liability insurance is important for a business but most importantly it protects you and your business, and your client will want you to have it. Regardless of how safe you are or how many precautionary measures you or your employees take, accidents can still happen and you will want to be protected. Without Commercial General Liability insurance, if a claim is made against your business or employees, you would be responsible for 100% of the legal fees and damages. With Commercial General Liability insurance, if you are sued and held liable for damages Commercial General Liability insurance will cover the expenses. Commercial General Liability insurance protects your company as a whole, as well as individual claims against the company that come from third-parties. Making sure your business and employees are covered by Commercial General Liability insurance can happen a few different ways. A business owner can add a contractor as an insured to their policy, subcontractors can add business owners as an insured to their policy, or clients can add contractors as an insured to their policy (this can be costly for clients). Something important to note is that before hiring a contractor you should make sure their policy is up to date and that it has an adequate amount of coverage for the job they will be performing. If all of the information is up to the accepted standards, the owner can be added as an insured to their policy so both the contractor and owner will be protected. Having Commercial General Liability insurance provides security for your company knowing your employees and assets will be protected.
Commercial Auto Liability
Nearly all contractors carry Commercial Auto Liability insurance because it protects vehicles that are used during business. Auto insurance is important for vehicles that are titled in a business’s name or used in relation to business, including ones that transport tools and equipment, that have the potential for property damage or bodily injury. It insures that both the employee and business owner are covered in the event of an auto accident on a construction site. Commercial Auto Liability is needed because Personal Auto Policies exclude vehicles used for business. Although contractor’s auto insurance is going to be more expensive than an individual auto policy, it includes specific coverage that is needed. Before hiring a contractor it is important to make sure their Commercial Auto Liability insurance has the right amount of coverage, that they have the correct type of coverage on all of their fleet, and that it covers any workers who may enter or exit the construction site in vehicles. When the policy is up to the accepted standards, the business owner will want to be named as an additional insured on the policy so both the contractor and owner are covered.
Many contractors do not carry Builder’s Risk insurance, which can be a risky game to play in certain situations. Builder’s Risk insurance insures project protection until the project is completed. It covers you in the event of perils that could occur during construction that could damage all or part of the construction or the materials, fixtures and equipment that is used. This includes stolen property on the site, perils including fire, tornados, winds or other unexpected events that could ruin a project. Since none of the other policies or the owner’s property insurance would cover this risk, if an unexpected event were to occur and a contractor did not have Builder’s Risk insurance, a contractor could walk away from the project because they would not be able to afford to repair the damages and complete the project. For example, if you were 75% completed with a project and a tornado came and damaged everything that had been done, Builder’s Risk insurance would cover the costs of what had been damaged allowing the contractor to complete the project without losing any money. On the other hand, if a contractor did not have Builder’s Risk insurance, they would either have to pay 100% out of pocket to start over or walk away from the project. Builder’s Risk insurance is recommended if a project could be exposed to catastrophic perils, if it will take longer than one day to complete, or if you want to play on the safe side and not risk an unexpected event like a fire or stolen property.
All contractors legally must have Worker’s Compensation insurance. This insurance protects employees injured on the job and covers medical expenses, a portion of lost wages, disability payments, and vocational rehabilitation benefits. Worker’s Compensation costs are just another unavoidable cost of doing business and is especially important in the construction industry due to it being more injury-prone than others. Worker’s Compensation is a form of no-fault insurance meaning if an injury happens on the job, the employers are liable regardless of what happened. Since Worker’s Compensation is a policy between the employer and their employees, you do not need to be named as an additional insured on a policy. Premium rates can be adjusted based on different factors like the number of employees, the individual employer’s history of claims and other factors.
Basic Information You Need Before Buying Policies
The following list of questions should help you zero in on the type and amount of insurance your contracting business needs.
- How much coverage do you need?
- What risks do we have that we may need covered?
- Make sure your insurance agent is experienced and reliable.
- What will increase or decrease insurance costs?
What Questions to Ask Before Buying Any Policies
- What is the coverage on this policy?
- In this policy, what perils are covered and what is excluded?
- What are the terms and conditions of the policy?
- Will this cover everything I need it to cover or do I need additional insurance?