With projected rates increasing in 2022 across the board, you might be questioning whether paying for insurance coverage is even worth it. Legally speaking, requirements tend to vary depending on the industry you work in and where you live. While most states do not necessitate it by law, neglecting to carry adequate insurance can be a costly oversight—especially once you become embroiled in a legal battle.
Moreover, many companies refuse to work with subcontractors who do not guarantee their own insurance. So, even though you might initially save money, you will likely lose out in the long run by failing to acquire valuable jobs. Though insurance typically does not impact the services you provide, it does help instill confidence in your skills and reliability. And in the event that something goes wrong, the last thing you want to worry about is drastic monetary repercussions.
Three Primary Types of Subcontractor Insurance
Before starting a job, you will be asked to provide documentation detailing your insurance coverage. The three most commonly requested policies are general liability, workers’ compensation, and commercial auto.
1. General Liability
General liability insurance covers critical risk factors, such as bodily injuries, property damage, and other accidental circumstances. Accordingly, it is the first form of insurance that general contractors usually require. Since many insurance companies purposefully exclude subcontractors from company policies, ensuring that subcontractors cover themselves is considered an essential step of the hiring process.
2. Workers’ Compensation
Should a workplace injury occur, costs associated with medical and disability can be covered by workers’ compensation. Though most states require primary contractors to cover their full-time employees, subcontractors are not afforded the same benefits. Without your own workers’ compensation policy, employers will likely hesitate to hire you for fear of being held responsible if you are injured on the job.
3. Commercial Auto
Commercial auto insurance provides coverage for vehicular accidents as well as non-collision damage, such as weather and theft. Unlike personal auto insurance, commercial auto policies cover all business activities and liabilities incurred while on the job. Therefore, commercial auto insurance is a must if any part of your work involves operating a vehicle.
Other Types of Coverage to Consider
While the three insurances listed above are the most common and sought after, an employer might ask for other types of policies. Depending on your field and expertise, the following insurances can come in handy.
Contractors Pollution Liability Insurance (CPL)
Unfortunately, many general liability policies explicitly exclude environmental factors. For example, someone who falls sick from pollutants released during construction can file a liability claim. CPL offers protection against such conditions. While it may seem very niche, the need for CPL is more common than many people realize since the term pollutant can refer to any number of common substances, such as bacteria, mold, or even paint fumes.
Umbrella
Umbrella insurance supplements your other policies by essentially extending their monetary limit. Should the incurred expenses exceed the scope of your standard coverage, an umbrella policy will take care of the rest. Unlike other contracts, umbrella insurance is broad in scope and applies to more than just niche scenarios. You can think of it as an extra layer of protection for liability claims.
Commercial Property
If you are a subcontractor with expensive trade tools or a place of operation, commercial property insurance can cover all of your physical assets. For starters, it protects everything in the building if damaged in a fire or stolen. It can even cover the income you lose when damage prevents you from opening your storefront.
Cyber
Technology is an essential part of any modern business. Unfortunately, data breaches and other cybercrimes often come with the territory, resulting in costly fines and legal expenses. Though 63% of small businesses have been attacked by hackers, cybercrimes are often excluded from general liability policies. Cyber insurance provides protection from claims incurred due to data breaches, such as social security numbers, credit card numbers, health records, and more.
Employment Practices Liability Insurance (EPLI)
EPLI protects businesses of all sizes against claims of worker’s rights violations, such as discrimination, negligence, wrongful termination, or sexual harassment. Without a dedicated legal department, small businesses can be crippled by damaging employment claims, and EPLI is an effective way to protect against such crises.
Bonding
Contractual agreements often contain legally binding constituents, otherwise known as contract bonds, to guarantee that work will be done correctly. Though bonding can help legitimize your business by reassuring customers that you can do the job as required, it is also an undeniable risk. Fortunately, bonding insurance can cover ensuing fees if you cannot fulfill a contractual obligation.
What Is a Certificate of Insurance?
A certificate of insurance (COI) is a brief document issued by an insurance broker or company that verifies and summarizes your total insurance coverage. Typically, it lists the essential contractual information for each policy, including the policy holder’s name, types of insurance, dollar limits, and expiration dates.
It is crucial to keep in mind that a COI is not an insurance policy by itself, nor is it a replacement. Many employers will also require you to produce the detailed insurance contract for them to review once you have been hired. And it should go without saying that you should never have a COI without the actual policies to back it up.
Bottom line, think of a COI as a cover letter for all your insurance policies that you submit alongside your bid. It lets potential employers know that you have insurance coverage and quickly and conveniently displays essential information without going into too much detail. Fortunately, COIs are a complimentary service, and all you have to do is put in a simple request to your broker or insurance company.
When and Why Do Subcontractors Need Insurance?
Unfortunately, the nuances of subcontractor insurance can be varied and confusing. For example, in some states, subcontractors and independent contractors are considered coworkers, protecting them from liability in personal injury lawsuits even if they do not have their own insurance.
Contrarily, the Supreme Court has previously refused to recognize such allowances when the work in question was outside the same trade or occupation. By that logic, performing any subcontractor work for a business outside your respective field means you will not be automatically shielded from potential lawsuits.
At a minimum, all subcontractors should consider general liability and workers’ compensation coverage. Other types of insurance depend on the industry and the specific job in question. Just remember that most primary contractors do not want to take on the risk associated with liability claims.
Obtaining your own insurance ahead of the job shows potential employers that you are both responsible and prepared. Not to mention, it guarantees you protection from stressful and costly legal complications.
