What Small Businesses Must Understand About Insurance for Contractors

Steve is ecstatic as he’s finally got the cash (and the will) to add that extension to complete the shop of his dreams. He calls a contractor and work begins. One of the days, disaster strikes! A worker has been rendered incapacitated because a beam fell on him. Steve turns to the contractor but to his horror, the contractor isn’t insured. Now the responsibility of paying for the worker’s injuries has been left to Steve, as it’s his building project. He would have to help the injured worker with money too as now he cannot take on new projects until he is fit again. Looks like Steve will have to dip into the money he’d saved to fulfill his dream.

If you, too, are building the business you’ve always dreamt of, don’t be like Steve. Make sure your contractor is insured. While it’s easy to be blindsided by ignorance and hastiness, it’s better to do your research and find out whether your contractor has the necessary documents to safeguard both of you during construction. Even if you’re not building your property from scratch, keep in mind that your property will require maintenance eventually. It’s only natural, as roofs wear down, and pipes start to leak. Sometimes, you may need to remodel your space. So, contractor insurance is important to know about in general We’re here with some information that would help you out in this situation.

What Insurance Policies Does Your Contractor Need?

The main policies would be general liability, automobile, and worker’s compensation. In Steve’s case, his contractor should have had a worker’s comp policy as that’s what comes into play when injury or damage is caused to a worker. Let’s take a closer look at these and what they cover.

General Liability

Ensure your contractor has sufficient general liability insurance coverage. This protects the business in case of bodily harm, property damage during business activities, and more. For example, if your contractor accidentally sprays paint onto your neighbor’s property. Without coverage, you would have to pay for these damages. With coverage, you won’t. These policies include a broad range of damages, such as:

  • Job-related injury
  • Faulty workmanship
  • Advertising injury/defamation

Contractors and developers need to have a minimum level of liability insurance, either by law or to win contracts that need it. Subcontractors are also required to carry this insurance to work for general contractors. These policies are available for the following types of businesses:

  • Developers
  • Light commercial general contractors
  • Residential general contractors (RGC)
  • Remodelers
  • HVAC, electrical, plumbers, and other trade/specialty contractors

Also, make sure your contractor’s insurance policy includes products and completed operations coverage. That will provide you with a policy to collect from in case the contractor’s work causes you harm. For example, you hired a contractor who builds a deck for you and after 6 months, it collapses – with you on it. That would cause you physical harm. What if you had customers along with you? That would result in many medical bills and other related costs. This insurance policy would cover these costs. Without it, you would be personally liable for your injuries and even those of your guests.

Auto Liability

Normally, this pertains to large contractors who have a fleet of work trucks. But it’s important for the smaller ones, too, as it covers loading and unloading. So, if your contractor has a truck with their materials and tools, and there was an accident while loading those onto the truck or into your building – auto liability insurance would help cover any necessary reimbursements. There are many types of coverage options for commercial auto insurance policies. These are similar to standard ones, which include:

  • Liability coverage – protects the company and employees from expenses incurred by accidents.
  • Physical damage – in case of collision, stolen vehicles, damage from vandalism, and destruction from natural disasters.
  • Medical payments – These would pay for injury-related expenses, including medical bills, hospital fees, ambulance costs, and funeral expenses.
  • Uninsured motorist coverage – These cover damages and injuries caused by uninsured drivers.

How To Verify Your Contractor’s Insurance

Ask for an insurance certificate for proof. Your contractor’s insurance broker would have given them this document. It includes name and date verifications, that would also serve as identity proof. Make sure the certificate has not expired and that all the details are legitimate. Verify the limits on your contractor’s insurance policies. Also, verify they have worker’s compensation and auto coverage.

Another point to consider is that the cheaper the contractor, the fewer the protections they’ll have. That’s how they can achieve lower price points. A contractor who is fully insured has high-quality protective gear, and adequately trained employees will usually charge more than others. If you’re forced to hire someone at a lower bid, make it a point to verify their insurance policies so that you can protect your business from unnecessary and expensive lawsuits and claims.

What Will Happen If Your Contractor Isn’t Insured?

In the case your contractor isn’t insured, there’s a possibility that you’ll have to pay out in case of injury. You can also lose money if the construction wasn’t sufficiently good. In Steve’s case, he had to pay out as a worker had been injured on his property. That’s money he could have otherwise used on his business. It’s tough to avoid such situations as failing to help the worker would have cast him in a bad light. That’s why it’s important to make sure your contractor has insurance.