Quick Guide to Contractor Insurance

 

Quick Guide to Contractor Insurance

The cost of construction and remodeling can be high. An unplanned expense can put a household in financial peril. Therefore, it makes sense to protect your business from cost-inevitable expenses by ensuring that you have contractor insurance.


A reliable contractor is one who consistently delivers what they promise at a price they say they’ll charge. They are also an accountable and trustworthy person; someone who is willing to take responsibility for the work they do, abide by industry standards and follow through with their commitments.


A knowledgeable pro is also someone who understands their limitations, knows when to seek help and knows when to walk away from a job if it’s no longer financially desirable or feasible.


You might wonder: why should I require contractor insurance? It will cost me more money than if I simply hire an independent contractor or subcontractors instead of having them as employees.


The answer lies in the risks you take by entering into a subcontracted relationship as well as the dangers posed by others to whom you give access to your space and property under the guise of hiring subtrusters or other third parties.


Contractor insurance will mitigate those risks while allowing you to continue operating with greater assurance that you won’t become personally liable for costs incurred by others due to poor workmanship, delays and accidents on-site not only repairs but also replacement costs after something was damaged beyond repair.


What is contractor insurance?

A contractor insurance policy will provide financial protection for you and your business if an engineer, architect, mason or other professional engaged by you to build or renovate a home, commercial property or other building is injured while on your premises.


Some policies also cover you in case an injury or accident occurs while that person is on another person’s property and working for you as a subcontractor. A contractor policy can also protect you against financial loss if your construction site is damaged by fire, storm or other unforeseen event and you are not at fault.


What Does Contractor Insurance Protect?

The type of loss that a contractor policy may cover depends on the policy you purchase. Some policies may cover just general damages (ex. lost product and lost business), while others may cover only specific damages (ex. replacement cost for a destroyed building) or both types of losses.


Coverage amounts can also vary significantly, with some policies offering as much as $1,000,000 in coverage while others offering much less. To find out exactly what contractor insurance will protect you against, you’ll usually have to ask the provider directly.


Who Needs Contractor Insurance?

Anyone who commissions or hires a contractor to perform work on your premises is generally covered by contractor insurance. This could be the contractor’s employees, subcontractors, subtrusters or anyone else who works on your property.


The types of work you have performed may also determine who is covered by your policy. If your building was not a large commercial or industrial construction project, you may not need a contractor policy. You may be covered by the general liability coverage of your homeowner's policy.


How Much Do You Need?

This varies depending on the specific policy you select, but most contractor insurance policies provide coverage for property damage and third-party bodily injury (involving injury or death to a person). Depending on the coverage you choose, some policies may provide liability coverage only while others may provide both property damage and bodily injury coverage.


Generally, it’s best to buy a contractor policy that provides at least $1 million in property damage coverage and a minimum of $250,000 in bodily injury coverage. These amounts are just guidelines, however, and you may decide to buy coverage more in line with your risk assessment.


Which Provider Is Right for You?

This will depend on several factors, including your specific needs, the amount of coverage you want and the provider who offers that coverage at the best price. It may be worth shopping around to see if you can get a better deal from another contractor insurance provider.


Alternatively, you may be able to get the same coverage from your current provider at a lower rate by getting approved for a contractor insurance rider (a specific provision of your homeowners or auto policy that provides extra coverage for a specific type of expense).


If you have a large construction project, you may find it more cost-effective to get contractor insurance from an accredited provider.


These are generally companies that have been around for more than 10 years and have demonstrated that they’re financially stable and able to meet their obligations.


Should you also get tenant insurance?

If you have a large project, you may want to consider purchasing contractor insurance and a separate tenant policy. The policy would provide coverage in case of a loss while the contractor policy would provide coverage in case of a loss while on site.


The coverage provided by a tenant policy is often much lower than that provided by a contractor policy. This is because a tenant policy is primarily designed to protect the building owner from costly damages that are the result of a third-party event, such as fire or windstorm damage.


Bottom line

Construction projects routinely encounter unexpected obstacles and setbacks. It can be difficult to foresee the worst-case scenario and protect yourself and your business from the financial impact of such an occurrence.


Properly managing risk and protecting your bottom line with the right type of insurance can help minimize the chances of a major expense. contractor insurance will help protect you and your business, regardless of the nature or size of your construction project.

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