An insurance policy is one tool contractors can't work without. This guide will explain which policies pros should strongly consider.
Most Common Types of Contractor’s Insurance
Updated on Aug. 02, 2023
For contractors, insurance policies are just as important as any tools they own. These policies protect them against a whole host of things that can go wrong, from simple accidents all the way to bad subcontractors.
But insurance comes in many forms, and contractors often need several policies to fully protect themselves. Check out this guide to the most common types of contractor’s insurance.
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General Liability Insurance
This is arguably the most important policy a contractor can carry. These policies are usually required by a licensing agency, protecting the contractor against accidents involving or claims filed by third parties.
Claims against general liability (GL) insurance could be for property damage or bodily injuries blamed (rightly or wrongly) on the contractor. So if the contractor does something that leads to a third party sustaining property damage or getting hurt, GL insurance should cover the costs.
General liability also covers accidents on the business’s property, like a customer slipping and falling while meeting with the contractor at their office.
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Worker’s Compensation
This is another mandatory policy for any contractor who carries employees. Worker’s comp covers the employee’s medical expenses in the event of an injury, illness, or accident related to the job. In an industry as potentially dangerous as construction, these policies can be invaluable for employers and employees.
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Builder’s Risk Insurance
This protects buildings and structures while they’re under construction. This could be a renovation or a completely new building.
The policy covers accidents such as fires, thefts, non-severe weather events or vandalism. It can even protect the contractor against financial loss from construction delays, should the project owner file a claim for rental income, sales income or taxes incurred.
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Commercial Auto Insurance
This is required for any contractor who operates or allows their employees to operate vehicles owned by the company.
Similar to a traditional insurance policy, this covers collision loss from accidents; comprehensive loss from weather; theft and loss from other non-collisions; bodily injury from at-fault accidents; and property damage for accidents to someone else’s property.
However, these policies generally have higher limits than personal auto insurance. They’re also more expensive.
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Errors and Omissions Insurance
Commonly called E&O or professional liability insurance, this policy protects contractors against mistakes. With these policies, customers can file claims if they feel the contractor made a mistake or failed to do something they should have.
This can be particularly helpful when a property owner feels the contractor (or even subcontractor) hasn’t performed their contractual obligations. The more complicated a project or contract, the more important this policy can be.
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Inland Marine Insurance
It might sound like something out of the contracting realm, but inland marine insurance is actually incredibly important. This policy protects materials, tools and equipment while in transit to and from a project or job site, as long as it’s over land.
An inland marine (IM) insurance policy can complement builder’s risk insurance. IM insurance covers business property while it’s being transported, and builder’s risk insurance protects it once it arrives at the site.
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Subcontractor Default Insurance
Contractors put a lot of faith in their subcontractors to complete a job, but they don’t always pull through. For contractors who carry subcontractor default insurance, this is slightly less of a headache, since this policy protects them if their subs fail to fulfill their contractual obligations.
This policy can offer protection and peace of mind for contractors who work with dozens of subs on large projects. Any expenses incurred can be reimbursed by the insurance policy, and the insurance company can go after the subcontractor for reimbursement.
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Pollution Liability Insurance
This protects contractors in the event something they built or some action they’ve taken leads to polluting someone’s property or causing bodily injury. This includes all sorts of hazardous waste and materials, including asbestos.
This policy covers the contractor against claims during and after construction. So for contractors building waste processing plants, manufacturing facilities or other structures that might handle hazardous materials, pollution liability could offer important ongoing protection.
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Wrap Insurance
This is one of the handiest policies for a contractor to carry. Often called CCIPs if purchased by the contractor or OCIPs if purchased by the owner, these provide liability insurance for the entire project, including everyone working on it. It covers contractors and subcontractors with general liability, and can even cover worker’s compensation.
While wrap insurance is more expensive than basic general liability, it does protect everyone on the project. This means that some subcontractors may not have to carry their own general liability or worker’s compensation policies, which could potentially be reflected in a lower bid.
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Business Owner’s Policy
This is a combination policy with multiple types of coverages. Generally, this includes general liability, commercial property insurance, builder’s risk and other policies that contractors may wrap under one policy for a savings.
For some smaller contractors, a business owner’s policy may be the smartest way to cover all of their interests without excess policies or unreasonable premiums.
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How To Get Contractor’s Insurance
Getting contractor’s insurance isn’t all that challenging. Most commercial insurance agents can assist contractors with their inquiries. Contractors should know how many employees they have, the size of the vehicles they need, the average price of the projects and other business data that the agent might require to provide a quote.
However, contractors should research the required policies in their state and decide what coverages they need. While it’s always better to have more coverage than less, newer contractors might lack the revenue to cover every policy the agent offers. Business owners should keep this in mind when shopping, but they shouldn’t skip a policy they might truly need.
