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The Ultimate Guide to Contractor Insurance​


If you’re an independent contractor looking to buy 1099 insurance, you might be wondering what type of coverage you need to buy. Do you need small business insurance, or are the rules and liabilities different insuring yourself as a contractor?

In this guide to contractor insurance, we explain everything you need to know, and we answer some of the most frequently asked questions about contractor coverage.

Quick References


Who needs to buy contractor insurance?

There are many different types of contractors; both the work they do and sectors they belong to reach far and wide. Because there is no single 1099 contractor’s insurance policy, most types of coverage can be tailored to meet the individual needs and risks that you may face in your line of work.

Regardless of whether you work from home as a digital marketing consultant, or you’re a plumbing or construction worker, you will have certain liabilities that you will need to protect yourself from. Although in years gone by, a contractor would have been defined as a tradesperson, times have changed, and there are contractors in almost every sector.

What type of insurance do contractors need to buy?

The coverage you need will depend on the work you do, and the specific risks you are exposed to. Buying the right type of contractor insurance can protect you from accidents, third-party property damage, and legal action. If you don’t buy the right type of coverage for your work as a contractor, then you be left exposed to significant financial risk. Here is a general overview of the different types of contractor insurance.

#1 E&O Insurance for Contractors

If you provide consultation or advisory services as part of your business, such as an accountant, business consultant, financial planner, architect, or interior designer. Any such type of provision can bring exposure to liabilities. Should any of your clients suffer a loss following your recommendations, they may file a lawsuit. Errors and Omissions coverage is there to protect you against any such occurrence.

#2 Product and Liquor Liability Insurance for Contractors

If you are a contractor that sells alcoholic beverages and food at functions or from a truck, then you will need to make sure you have the right coverage in place to protect you. If a patron is overserved alcohol and they injure themselves, another person or property, then you could be liable for the costs.

#3 Commercial Auto Insurance for Contractors

If you use your personal vehicle for work-related reasons, you might not be fully covered by a general auto insurance policy. Aside from this, you might not have the right level of coverage to adequately protect your equipment.

Commercial auto insurance can enable you to cover the costs of any lawsuits, medical bills, property damage, and other expenses that may arise from an accident. It can also pay for any vehicle damage that is caused by vandalism, weather, or vehicle theft as well.

A contractor’s commercial insurance policy can be customized to fit your unique needs.

Do contractors need to buy commercial auto insurance?

If you drive a company-owned vehicle, then it will need to be covered by a commercial auto insurance policy. It is also usually required if you transport any tools or equipment, or if you operate a construction or contracting vehicle of any type.

If in doubt, always check this with a local commercial insurance agent first. Each state will usually have their own regulations that set out how much insurance coverage you will need to buy; at a minimum, you need to make sure your insurance meets these requirements.

Can I use my personal vehicle for work-related reasons as a contractor?

A business auto insurance policy will usually only cover those vehicles that are owned by the company. However, as a contractor, you might choose to use your own vehicle or even a rented vehicle for work-related reasons. However, most personal auto insurance policies will not cover business use. Hired and non-owned auto insurance will give you the right type of coverage if you want to use your own vehicle for work.

#4 Medical and Disability Coverage

As an independent contractor, you won’t typically belong to any type of group medical coverage plan. As such, you are exposed to a loss in income should you become unwell, injured, or disabled. Buying medical and disability coverage can alleviate some of that risk and give you peace of mind.

#5 Equipment Breakdown Coverage

If you’re the type of contractor who depends on essential tools and equipment to do your work, then this is another key consideration. When trying to decide whether or not this is needed, consider these essential questions.

  • Can you perform all of your duties without your equipment?
  • If something was to breakdown, would you be able to serve all your customer's needs?
  • How much would it cost if any particular piece of equipment was out of action for up to 3 months?
  • Will your customers wait for your equipment to be fixed or replaced, or could they go elsewhere?

These are tough questions to ask, but hopefully, the answers will help you to decide whether or not the cost of buying this insurance is worth the investment. In most cases, the answer is a resounding yes.

If you would like to find out more about the different types of equipment that can be covered, you can speak with a local commercial insurance agent. They can give you a cost for this insurance, along with helping you choose the most suitable levels based on your individual business needs.

#6 General Liability Coverage

This is one of the most essential types of coverage you can buy for your work as a contractor. A general liability policy can protect you from any third-party claims for property damage, personal injury, advertising injury, and more. Here’s a breakdown of the coverage you get from a contractor’s general liability policy.

  • Property Damage – This element of a general liability policy will offer coverage in the event that either you or one of your workers damages property that belongs to a third-party.
  • Bodily Injury - This provides coverage if either you or somebody who works for you cause an injury or even death to a third-party while they carry out their work-related duties. It can pay for medical care and legal expenses in the event you have to deal with a lawsuit.
  • Advertising Personal Injury – This provides coverage in the event you allegedly cause damage to another entity’s reputation or cause them to suffer a financial loss as a result of libel, false advertising, or slander.
  • Completed Operations / Product – This element of general liability coverage gives you protection in the event a project that you finished develops an issue or causes damage. This can be extended to cover the products you make, sell, or distribute as well.

Are a crew’s workplace injuries covered by general liability coverage?

No. A general liability policy will only offer coverage for third-party injuries. If you want to protect members of your crew against accidents, then a worker’s compensation policy is ideally suited for this.

**Please note**

Not all general liability policies are created equal, and the specific levels of coverage and inclusions may vary slightly from provider to the next. As such, it’s important to speak with a local contractor insurance specialist who will be able to advise you on the best type of coverage for the specific type of work you do and the individual risks your business exposes you to.

#7 Contractor Bonds

Although it might not technically be a type of insurance policy, a surety bond is something you might come across when dealing with contract work. It acts as a guarantee that you will complete the project in line with your contractual obligations. The reason we have included this in this post, is that an insurance company will typically issue the bonds to contractors, and it’s also another example of something a local commercial insurance agent can help you with.

The issuer of the bonds will assure your client of reimbursement should you not deliver on your project. It will then be down to you as the contractor to repay the insurer. Generally speaking, a surety bond can cost anything between 1-15% of the total bond amount.

Surety bonds are used frequently for contractor work, and your local insurance agent will be able to help you get more relevant information. There are four different types of surety bonds that are used with contractors.

  • Big bonds

This type of surety bond is designed to stop a contractor from submitting unrealistic bids for their work. They offer a guarantee of compensation to the owner of the project in the event you fail to honor your original bid proposal.

  • Contractor License Bond

This type of license bond will be required by law at either a city, state, or county level. These are essential if you need to get licensed, and if you try and work without one, you could risk facing huge fines.

  • Performance Bonds

This type of surety bond forms a type of guarantee that a project will be completed on time, as per the original contract. If a project fails to meet any pre-determined quality standards, or it takes too long, the owner of the project can claim against this performance bond.

  • Payment Bonds

This bond will act as a guarantee that you will pay your suppliers and subcontractors. A client might request that you buy a payment bond because having these bonds can protect their interests, as they will not need to cover these costs should the contractor fail to pay. If you are bidding on a contract that exceeds a value of $100,000, then federal law will require you to have payment bonds in place before any contract award can take place.


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Do contractors really need to buy general liability coverage?

Many contractors believe that they might not need general liability coverage for the work they do. For instance, a work from home consultant will not have physical business premises, and therefore consider there is no risk of personal injury to others.

However, if that contractor was to visit a client in their office, and someone was to trip over their laptop cable or bag; they could face legal action as a result of the incident. Similarly, if that same consultant was to damage any property while visiting a client (even if it’s accidentally), they could still face legal action from their client if they look to recoup the cost of the damaged property.

How much does contractor insurance cost?

There are many moving parts to a contractor insurance package, and the cost of your insurance will depend on a range of factors: these include

  • What you do
  • The type of contracts you get (value, location, etc.)
  • The value of any business equipment or inventory
  • Where you work, and how much you travel for work
  • Your annual turnover
  • Percentage of residential/commercial clients
  • The specific type of contractor insurance coverage you need

The cost of a contractor’s insurance policy for a website designer who works at home 100% of the time, would be quite different to that of a construction contractor who travels to different sites on a weekly basis, giving advice as part of their role.

In all scenarios, and with whatever line of work you do, your best option is to speak directly with a local commercial insurance agent. They will be able to answer your questions, understand the types of insurance you will need, along with the numerous risks you face as well.

How to find the best independent contractor coverage?

If you’ve tried to search online for the best contractor coverage, you may find an overwhelming number of companies, each claiming to offer the best 1099 insurance. An insurance agent can help you quickly locate the best policies, with the most suitable insurance options for your individual needs.

Here are a few tips to help you filter out the good from the not-so-good.

Compare Policy Terms, Coverage Limits, and Deductibles

When you compare contractor insurance options, the key things to review are:

  • Price
  • Policy Exclusions
  • Coverage limits
  • Your deductibles
  • Price

All too often, people tend to look at the cost of their contractor insurance as the primary deciding fact. However, when you dig a little deeper into the policy terms, there are clear reasons why the lowest priced policy is cheaper than others.

Use a commercial insurance agent

If you’re not completely comfortable with the policy documentation, or you cannot easily find the information you need; then using commercial insurance can save you time, hassle, and ultimately help you get the best contractor’s insurance policy for your needs.

Ask for Recommendations

Most contractors will alongside or for other contractors, and many will have their own networks to draw from. Asking for a personal recommendation is a great way to find out about insurance companies for contractors. If anybody has ever experienced the claims process and has either good or bad feedback for you, this can help you rule insurers in or out of your search.

Research

If you are comparing quotes across a number of business insurance companies, and these insurers are new to you, then you need to make sure you take a little time to review their online reputation. It might take a little time, but it could prevent you from buying contractor’s insurance from a company with a poor claims process or customer support.

Do contractors need to buy a business owners policy?

First of all, let’s explain exactly what a BOP is. This is not a single insurance policy for 1099 contractors. Instead, it combines 2-3 different types of insurance into a package. A BOP can save you money, and it means you get comprehensive coverage for some of the most typical business exposures.

A business owners policy will combine commercial property coverage, commercial general liability insurance, and in most cases (but not all), you will also get business interruption coverage too.

Is a BOP the right type of insurance for a contractor?

Due to the huge variation in the types of work that contractors do, there isn’t a straightforward yes or no answer. However, not all contractors need to buy a BOP, although it might still offer money-saving benefits.

A BOP serves two primary purposes. Not only does it expand your general liability insurance to include other typical risks a business will face on a daily basis. But it also gives you an overall discount on your policy. However, this discount is only of value if you actually need this additional coverage. In most cases, this type of insurance makes sense if you employ people.

For instance, if you are a contractor who:

  • Works from home
  • You do not visit clients in person
  • You clients do not visit you
  • You have no expensive company equipment or inventory that is kept at your home

Then, you might not actually need to buy a commercial property insurance policy. However, as there are many moving parts to this question, it’s always a good idea to speak with a local contractor insurance specialist regarding your individual needs and risks. A quick call to your local commercial agent today, could prevent you from buying the wrong type of coverage, or, worse still, not enough coverage for your business.

Do contractors need to buy workers compensation insurance?

In most states, it is a legal requirement to buy workers compensation coverage, but what do you do if you’re a contractor? If you employ people, then you could be legally obliged to buy it. However, as an independent contractor, while you might not have to buy this type of insurance, you might still benefit from adding it to your commercial insurance package.

Always check with a local contractor insurance agent to make sure you are adhering fully to your individual state insurance requirements.

Should You Buy Professional Liability Coverage?

We’ve already mentioned E&O insurance for contractors in this post; this is essentially the same type of coverage and is known as E&O, errors and omissions, or professionally liability coverage. This type of liability insurance can protect you in case you make a mistake or are alleged to have done so. It can provide you with a legal defense and also cover the costs of any settlements if needed.

If you provide advice or consultation services as part of the work you do, or you hire people that offer advice to your clients, then this is an essential type of coverage you should consider. In some states, you will be legally required to have E&O insurance in place due to the type of work you perform. If you hire or use contractors, then it’s good practice to make sure they have the right coverage in place before they start working for you.

If you are unsure about whether you need to buy errors and omissions insurance as a contractor, or you just want to make sure you are up to date with your individual state laws; speaking with a local commercial insurance agent can help you get answers to your questions and put your mind at ease.

What type of insurance does a 1099 contractor need to buy?

As a 1099 worker, you can still be held liable for damages and exposed to legal action in the same way as a business. For this reason, you need to make sure you buy enough liability insurance to cover your maximum exposures, and you protect your personal assets, along with your business.

In some cases, your client might ask you to buy a specific level of coverage before you can start working with them. If you work in a certain sector, such as construction, you might be legally required to obtain certain types of insurance.

What information do you need to get a quote for contractor’s insurance?

Thankfully, you don’t need to worry about having to get too much information together before you get a quote for insuring your work as a contractor. You will be asked some basic questions about:

  • The work you do
  • The size of your business
  • The type of contracts you get (length, value, location, etc.)
  • The clients you work with
  • Where you work, and how much you travel for work
  • The approximate business revenue
  • Percentage of commercial, residential, and industrial clients
  • The type of coverage you want to buy
  • The value of any business equipment you own

This might sound like a lot, but your insurance agent will need to determine how much of a risk you pose and ensure the correct risk-ratings are applied. 

Do I need to buy insurance for subcontractors I use?

If one of your subcontractors makes a mistake, then you can be held liable for this.  However, if you buy your own contractor insurance, getting them added on will cost you more money. An easy way around this is to ensure all your contractors have insurance before you start working with them.

If you decide to do this, it’s always good practice to keep a copy on file. At the very least, you will need them to confirm this on an annual or bi-annual basis to verify the policy is still in place.


In Conclusion

An independent contractor is exposed to most of the same risks as any other small business. Buying insurance could also be a legal state-requirement, and some clients might want to see an insurance certificate before they’ll do business with you. Because there is no specific insurance policy that is designed to cover all of the exposures a contractor faces, it is necessary to tailor existing commercial insurance policies to the individual challenges you face in your industry or role. 

Your customers and clients only want to deal with contractors that are confident in their business, qualified, and insured. Buying contractor liability insurance is a great way to show them that you are a professional contractor who is worthy of their business.


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