Contractors Insurance FAQ: What You Should Know

Whether you’re a general contractor, artisan, trade, or sub-contractor, having the right insurance coverage is critical to your success. An experienced independent insurance agent can help structure a policy that protects you from the unique risks contractors face. And this extends beyond a simple regulatory checkbox—it’s vital to protecting the livelihood of all parties involved.

What Types of Contractors Need Insurance?

Contractors required to have insurance by law typically include:

• General Contractors
• Electricians
• Plumbers
• Roofers
• HVAC Technicians
• Carpenters

Do Subcontractors Need Insurance?

Yes. Even when employed by a general contractor with insurance, subcontractors must have their own insurance policies, like general liability, to protect themselves and others. Depending on the nature of the work and the requirements of the project, subcontractors may also need additional coverages, like workers’ compensation, professional liability, errors & omissions, tools and equipment coverage, or umbrella.

Are Coverage Requirements Different Per State?

Yes. Each state has its own regulations and requirements regarding the types of insurance contractors must carry, including general liability insurance, workers’ compensation, and others. A professional insurance agent at Allied Insurance Managers can customize and insurance program that meets the requirements.

What Kind of Insurance Do Contractors Need?

Required by Law*

Minimum insurance coverage required by most state laws generally includes:

• Commercial Auto: This is required in all states, as it covers the liability associated with operating a vehicle.
• Workers’ Compensation: This is required in most states, as it covers medical costs and lost wages for injured employees.

*Note: Remember—each state has different requirements. Always consult a licensed insurance agent to learn more about required coverage and coverage limits in your state.

Additional Coverage

While not required by law, you should consider General Liability, Builders Risk, E&O, Contractors Pollution, Personal Property & Equipment, and Inland Marine.

Builders Risk covers the physical property while under construction from damage including fire, theft, or natural disasters, while Errors and Omissions (E&O) covers legal and financial consequences of mistakes or failures in professional services.

Contractors’ pollution covers sudden and accidental construction site contamination and cleanup while equipment insurance and Inland Marine protect against damage or loss to equipment and tools while at a job site, in transit or away from your premises.

Does Auto Insurance Cover Tools & Equipment Inside the Vehicle?

No. Generally, standard auto insurance does not cover tools and equipment stored inside vehicles. For protection against theft, or damaged tools and equipment, you need to obtain special coverage, such as contractors equipment insurance or Inland Marine insurance.

What Is Inland Marine Insurance & Equipment Insurance?

Inland Marine insurance covers property that is mobile in nature. Equipment insurance is a component of Inland Marine insurance that can cover equipment owned, leased, or rented and used by the business.

So, if tools and equipment are stolen from your truck at a job site, Inland Marine insurance would likely cover the loss.

What Should You Look for in Contractors Insurance?

When looking for the best contractor’s insurance coverage, you should look for:

1. Adequate coverage limits to protect against potential risks and liabilities.
2. Policy that is structured to cover your specific business activities and risks.
3. An “A.M Best A- Rating” or better.
4. Experience with contractors and construction insurance.
5. Reasonable deductibles that balance cost and coverage.
6. Options for additional coverage, like Umbrella, Builders Risk, E&O, and blanket additional insured provisions, including products and completed operations. 

Do I Need Workers’ Compensation If I Do Not Have Employees?

If you are considered a sole proprietor, you are most likely not legally required to carry workers’ compensation coverage. However, there are some nuances to that, especially when you are a subcontractor. In many cases, you may want to consider workers’ compensation, even if you don’t have employees as you may be required (in a contract) to have the coverage. Please note that some states do not provide benefits to independent contractors that are self-employed. We suggest contacting a construction insurance specialist to learn more about the rules and regulations in your state.

What Proof of Insurance Should Contractors Have?

• Certificate of Insurance (COI): This document highlights coverage, policy numbers, effective dates, and policy limits. It is typically requested by clients or project managers who need proof that the contractor has the right insurance coverage in place.
• Policy Declarations Page: The Policy Declarations Page is the part of the insurance policy that provides detailed information about the policyholder, the coverage provided, policy limits, and the coverage period. It’s often used for internal records.
• Additional Insured Endorsements: If you’ve agreed to add another party additionally insured on your policy, they could require a copy of the endorsement, verifying that coverage is in place. It can also be listed at the bottom of the certificate of insurance.
• Auto Certificates (ID Cards): Required to be in the commercial vehicle.

What Is the Cost of Contractors Insurance?

If you’re looking for a quote, you will need to contact an insurance agent as the cost is influenced by several factors, including:

• Type of Trade or Work: Different industries have different risk levels. For example, roofing is typically considered higher risk than plumbing.
• Business Size, Payroll, Sub Costs & Employees: Larger businesses with more employees typically pay more for insurance due to the increased exposure and risk.
• Location: Insurance costs vary by location, regulations, legal environment, and weather patterns.
• Claims History: If a company has a history of insurance claims, that could indicate higher risk and lead to higher premiums.
• Coverage Amount & Deductibles: Higher coverage limits and lower deductibles will typically increase the cost of insurance.
• Experience & Safety Record: Contractors with a long history of safe operations may qualify for lower rates. A credit experience modification can also lead to lower rates.
• Contract Value & Project Duration: Larger and longer contracts/projects can increase insurance costs due to the extended exposure to risk.

What Is Primary Wording?

Primary wording establishes a specific insurance policy as the first to respond to a claim before any other applicable policy. This is particularly relevant when a subcontractor’s general liability insurance policy names the owner or general contractor as an additional insured. In such cases, the subcontractor’s policy would be primary and respond to a claim first, while the general contractor’s policy would be secondary or excess.

What Is Waiver of Subrogation?

A Waiver of Subrogation is a clause in an insurance policy where the insurer agrees to waive its right to seek compensation from a third party for a loss paid to the insured. So, if the insurance company pays a claim for a loss, the company agrees not to pursue the client or another involved party for reimbursement. This is especially important in helping contractors maintain pleasant business relationships with their clients and other parties involved in the contract.

What Are Surety Bonds?

Surety bonds are a three-party agreement primarily used to guarantee a contract’s completion. In this agreement, the surety (typically an insurance company or financial institution) guarantees to the obligee (project owner) that the principal (contractor) will fulfill their contractual obligations. If the contractor fails, the surety is responsible for finding a replacement contractor to complete the contract or compensating the project owner for financial losses.

How Are Surety Bonds Different From Insurance?

Surety bonds differ from insurance in a couple of ways. First, insurance is a two-party agreement, while surety bonds are a three-party agreement. Secondly, surety bonds are more about guaranteeing performance, while insurance is about covering risk.

Start Your Contractor Insurance Program With Allied Insurance Managers

Do you have questions about contractors’ insurance that weren’t answered in this blog? Contact our experts at Allied Insurance Managers today! For over three decades, we’ve helped businesses in many industries, including construction, find the right insurance policies. Whether you’re an independent contractor, subcontractor, or electrical company, we can help you build a custom program that protects you from the unexpected.