Recommended Insurance Coverage for Contractors:

–          General Liability: As a contractor, the minimum aggregate limit of liability you should carry is at least $1,000,000 (and often times the cost to increase the limit to $2,000,000 is only a small additional amount per year). Most projects will require at least this amount of insurance, and many carriers do not offer limits lower than this. General Liability insurance covers property damage or bodily injury inflicted onto a third-party. For example: if you are performing a job for a homeowner, and you accidentally damage their property while you are completing the job, your General Liability insurance would pay out to the homeowner so they can repair the damage that you caused. Within General Liability policies, there are 2 different types: ‘Claims-Made’ and ‘Full Occurrence’. Click the link to find out more about the differences between them.

–          Workers’ Compensation: If you have employees, this type of insurance will protect you from being sued for lost wages or medical expenses in the event your employee becomes sick or injured on the job. If you do not have any employees, some states allow you to provide a Workers’ Compensation waiver in lieu of purchasing a policy, since the coverage is not applicable to you. If your state does not allow a waiver, you can sometimes find something called a ‘Ghost Policy’, which is essentially a Workers’ Compensation policy that excludes coverage for any employees. This type of policy allows you to fulfill insurance requirements that demand Workers’ Compensation, even though you do not have any employees that need to be covered.

–          Commercial Auto: This type of insurance will cover you in the event of an accident while you are using your vehicle to travel between job sites, or while you are using your vehicle for any business-related activities. Your Personal Auto insurance will not cover you or your vehicle if you get into an accident while using your vehicle for business purposes. In some cases, you may be able to add coverage for incidental business use to your Personal Auto policy to avoid buying a separate commercial policy. Alternatively, many Commercial Auto policies will also allow some personal use of your vehicle so that you do not have to carry two auto policies simultaneously.

–          Equipment Coverage: If you have a large number of small tools totaling at least $10,000 in value, you can purchase Miscellaneous Tool Coverage in case they are stolen or damaged. Or, if you have any single piece of equipment or tool that is worth more than $1,000 you can purchase a Scheduled Equipment Policy to cover these items. Also, Rented Equipment coverage is a good idea if you ever rent heavy equipment to complete a job.

–          Contractor’s Bond: Many cities and townships require specific bonds for contractors to pull permits or perform construction. Bonds can also be an inexpensive way to boost your credibility to potential clients and help you stand out when bidding on projects. 

–          Professional Liability: Also referred to as Errors & Omissions Insurance, Professional Liability can cover you against claims of negligence if you provide professional services such as design & architecture, home inspection, and even property preservation. If the nature of your work is more consultative than physical, you may want to consider a Professional Liability policy in addition to a General Liability policy.

–          Builder’s Risk: This coverage is applicable if you are building a new home, doing a large renovation project, or if you do any sort of ‘house flipping’. This type of policy is for a specific job at a specific location and can offer coverage up to the amount of the existing structure and/or the total value of the finished project.

What are the differences between ‘Claims-Made’ and ‘Full Occurrence’ General Liability policies?

There is really only one major difference between a Claims-Made and a Full Occurrence policy: when can a claim be filed?

In order for a loss to be covered under either one of these policies, the Bodily Injury or Property Damage must occur during the policy period. However, with a Full Occurrence policy, it is possible to file a claim for a loss even after the policy is expired, as long as the loss occurred when the policy was active. With a Claims-Made policy, the claim must be filed before the policy expires for the loss to be covered.

–          Claims-Made: with this type of policy, a claim can ONLY be filed while the policy is active (and often for a short period after the policy is expired, maybe 30-60 days, depending on the carrier).

–          Full Occurrence: with this type of policy, a claim can be filed for a loss even after the policy is expired, as long as the original date of the loss was during the policy period.

I do all types of work, including repairs, painting, electrical, etc. What kind of options do I have?

There are essentially 3 levels of classification for a “jack of all trades”:

–          If your typical job is around $500 or less, you can usually be classified as a Handyperson, which will cover small odd jobs. This is the lowest-level classification in terms of the operations it will cover. Most handyman policies exclude any kind of roofing, structural remodel work, or anything more than just a minor cosmetic repair.

–          If you work mostly as a General Contractor and do various types of remodel work, you can usually be covered under a Residential or Commercial Remodel class code. Typically this classification does NOT include roofing work, but it will usually include structural remodels and additions.

–          If you do everything from roofing, to new construction, to remodel work, you will likely be classified under New Residential or Commercial Construction. This is usually the broadest class code that includes the most types of construction work. Being that it includes coverage for these operations, this classification is usually the most expensive of the three options.