General Liability Insurance for Contractors: Everything You Need to Know

Accidents can happen at any job site. Tools may get damaged, or someone might get injured. 

To avoid such cases, general liability insurance for contractors is a must-have. It protects you and your business from unexpected costs. It helps pay for property damage, medical bills, and legal fees.

No matter your industry, safety should come first. If you hire contractors, this insurance protects your company if their work causes problems. 

For small businesses where one slip of your workers could ruin your big projects legally, general liability insurance for independent contractors gives you peace of mind.

This blog discusses the importance of contractor general liability insurance, the cost of general liability insurance for contractors, how general liability insurance is calculated for contractors, and more. Read on!

What is General Liability Insurance for Contractors?

General liability insurance for contractors or contractor's liability insurance is designed to protect your business from the risks of lawsuits and claims that arise in your day-to-day work. 

If your company is sued, whether or not you are at fault, this insurance helps cover the costs of legal fees, damages, and settlements.

However, general liability insurance for contractors does not cover every possible lawsuit. It is meant for the most common risks and legal liabilities contractors face. 

You can expand your coverage based on your needs, such as adding coverage for vendor endorsements or specific contractual liabilities.

Why Contractors Need Liability Insurance

Liability insurance for contractors is essential across all professions, from construction to repair to consulting. 

Without proper coverage, these risks can lead to costly financial burdens, legal fees, and damage to your reputation.

• In construction, contractors are exposed to risks like property damage, worker injuries, and errors in design or execution. A single mistake could result in expensive repairs, delays, or lawsuits. General liability insurance helps cover property damage and bodily injuries caused by accidents on-site.

• For repair contractors, the risks may include accidental damage to a client's property or faulty workmanship, leading to further issues. If a repair job goes wrong, your insurance can protect you from the financial fallout of rework, claims for damages, and even personal injury lawsuits.

• It is not just contractors; consultants offering expertise also need liability insurance to protect themselves from claims of errors in their recommendations. The difference between a contractor and a consultant lies in using labor law as a safety net. It covers the legal costs and settlements if their advice leads to your financial losses or project failures.

Key Coverage Areas in Contractor General Liability Insurance

General liability insurance for contractors or independent contractor insurance coverage is your first line of defense. It safeguards you from the most common liabilities contractors face, assuring that accidents, damages, or legal claims do not disrupt your operations or reputation. 

If you’re thinking - what does general liability insurance cover for contractors or contractors liability insurance what does it cover - here’s the answer.

Its coverage list is long- from personal injury and completed operations to legal defense costs. Some of the most common ones are:

Bodily Injury

This coverage helps if someone gets injured on your job site due to your work. 

For example, a client visits your construction site and trips over a misplaced tool, breaking their wrist. 

The insurance for a contractor can cover their medical expenses and any legal fees if they sue. 

It covers:

• The fees of the advocate
• Settlement
• Medical bills
• Court order judgment
• If the blow of the accident becomes fatal and someone dies, the insurance covers the funeral, too.

However, this policy does not cover injuries to your employees; you need Workers’ Compensation or Labor Law for that.

Property Damage

If you accidentally damage someone’s property while working, this insurance can help. 

For instance, during a client’s kitchen renovation, a contractor accidentally dropped a heavy piece of equipment, damaging the client’s expensive marble countertop. 

The policy can pay for repairs or replacements and legal costs if the client sues for damages.

Reputational Harm and Advertising Injury

Sometimes, you unknowingly copy a slogan or mimic an opinion that another company is based on. In cases of accidental advertising, contractor liability insurance pays for the compensations. 

For example, if a competitor claims that your advertising materials made defamatory statements about their company, your policy can cover legal costs and settlement fees. 

It covers:

• Copyright infringements 
• Claims of defamation for both slander and libel

Who Needs Contractor Liability Insurance?

Contractor liability insurance is important for anyone providing services to clients. No matter your trade or expertise, risks are always present. 

Here are some types of contractors who can benefit from this coverage:

• Electricians
• Plumbers
• Carpenters and builders

• Freelance designers and consultants

• Handymen and repair contractors

Independent Contractors

Today, as people find freedom in working individually as freelancers or independent contractors, the promise of independent contractor liability insurance is becoming the need of the hour. 

When you work alone, your financial security is entirely in your hands. An unexpected injury, illness, or lawsuit can quickly lead to significant debt. 

With the right insurance, you are protected from these risks. 

• Not only does it cover weekly wages, business expenses, or legal costs, but it also strengthens your professional image. When you show potential clients that you are insured, it builds trust and credibility. Clients feel reassured knowing they are protected if something goes wrong.

• In many industries, clients now require proof of insurance, especially in fields like construction, consultancy, or any profession that involves risks. Having insurance ensures you meet these requirements and remain eligible for high-value contracts.

• Beyond all this, insurance gives you peace of mind. You can focus on delivering quality work without worrying about financial risks. Knowing you’re covered allows you to grow your business confidently and take on bigger opportunities.

Businesses Hiring Contractors

Hiring contractors can be a cost-effective way for businesses to complete projects. Depending on your needs, you might need the assistance of a W-2 employee or a 1099 contractor. 

However, working with uninsured contractors exposes you to significant risks. 

• If an uninsured contractor causes damage to your client’s property, you could end up paying for the repairs. This is particularly effective if the contractor's negligence causes the damage.

• Another major risk is liability for injuries. If a contractor gets hurt while working on your property and they do not have insurance, they might sue you for their medical expenses and lost wages.

• Mistakes made by an uninsured contractor can also result in expensive repairs or delays. Hiring an uninsured contractor in some states is even against the law, adding legal risks to the equation.

Always verify a contractor’s general liability insurance before hiring them to protect your business. Ask for their insurance certificate to confirm they have adequate coverage. 

This simple step saves you from financial losses, legal troubles, and unnecessary stress.

Types of Contractor Insurance Beyond General Liability

While general liability insurance for contractors is essential, it is not always enough to cover every risk you might face. Different jobs come with unique challenges; having the right coverage can make all the difference.

Depending on the nature of your work and the level of risk involved, you may need other policies to ensure full protection. 

Let us explore some options beyond the general liability insurance for contractors: 

Commercial Auto Insurance

Commercial auto insurance is designed to protect vehicles used for business purposes. This coverage helps businesses avoid high repair costs, medical expenses, and lawsuits resulting from auto accidents involving their vehicles. Coverage options include:

• Liability coverage to protect against expenses related to accidents caused by employees while driving company vehicles.
• Physical damage coverage for damages to company vehicles after a collision. This may also include comprehensive coverage for theft, vandalism, or natural disasters.
• Medical payments coverage pays for medical bills, ambulance fees, and other injury-related costs resulting from covered incidents.
• Uninsured motorist coverage protects against damages and injuries caused by drivers who don’t have insurance.

Workers' Compensation Insurance

Workers’ compensation insurance, often called workers’ comp, protects businesses and contractors when their employees are injured. This coverage assures that the injured worker and the employer are financially protected after a workplace incident. It covers the following costs:

• Medical expenses for the treatment of the injured employee.
• Missed wages during the employee's recovery period.
• Ongoing recovery costs, such as rehabilitation or therapy.
• Legal fees if the injured worker sues the employer.
• Funeral costs and death benefits in the event of a fatal workplace injury.

Errors and Omissions Insurance

Errors and omissions (E&O) insurance, or professional liability insurance for contractors, protects against claims resulting from mistakes or negligence in your work. 

For example, if an engineer makes an error in structural calculations that leads to costly repairs, the client may sue to recover the expenses. In such a case, the E&O policy could help cover the claim, such as:

• Financial losses are caused by mistakes or negligence.

However, it does not cover:

• Property damage,
• Bodily injury claims.

Business Income and Property Insurance

Business income and property insurance cover lost income if your business operations are interrupted by events such as fires, theft, or natural disasters.

It also protects the tools and equipment you rely on for your work. Whether it is computers, software, or specialized tools, this policy compensates you for repairs or replacements if these items are stolen or damaged. 

For example, if a graphic designer’s laptop is stolen, the insurance would cover the cost of a new one.

How General Liability Insurance is Calculated for Contractors

No two general liability insurance for contractors are the same. How is general liability insurance calculated for contractors is influenced by various factors, depending on the policy of your business and the risks it faces. Calculate your cost to hire knowing what affects it, such as: 

Industry-Specific Risk

High-risk jobs, like construction, usually cost more to insure than lower-risk jobs, like consulting or painting. The type of work you perform determines how much risk your insurer assumes.

Coverage Limits and Deductibles

Your premiums are based on how much coverage you choose. Higher coverage limits or lower deductibles usually mean higher costs. 

A basic policy with fewer benefits might cost less but will not offer as much protection. Balancing these factors helps you get the right coverage at a cost that works for you.

Business Size and Experience

Larger businesses or those in areas with higher crime rates often pay more than smaller businesses in safer locations. 

Moreover, having more employees means higher risk, as there are more chances for accidents or lawsuits. Policies for businesses with larger teams typically cost more than those for solo contractors.

Average Cost of General Liability Insurance for Contractors

Insurance is needed, but how much does contractor insurance cost? And what is the general liability insurance cost for contractors or independent contractor liability insurance cost?

Understanding the average costs of independent contractor insurance is key to managing your budget. 

Here is a breakdown of monthly and annual costs, along with cost variations:

Sample Cost Breakdown

Knowing the contractor's liability insurance, what does it cover, and the types of costs is not enough. Find out the cost variations, too. Several factors can influence the cost, such as:

• Location: If you work in a larger city, premiums may increase due to the increased risk of accidents.
• Crew size: More employees can mean more risks and higher premiums.
• Coverage limits: High coverage limits, such as $2 million instead of $1 million, will increase your insurance cost.

How to Save on Contractor Insurance

Here are some practical ways to lower your contractor’s liability insurance costs while maintaining adequate coverage:

• Comparison shopping: Different insurers price policies differently. Compare quotes from multiple providers to find the best deal for your needs.‍
• Bundling policies: If you combine general liability with other insurance types, such as commercial property insurance, you may qualify for discounts.‍
• Maintaining a safe work environment: A safer environment can help reduce premiums. Keep all your records and build a safe work culture to get discounts from insurers.
• ‍Choosing appropriate coverage limits: Higher coverage limits come with higher costs. Evaluate your business risks carefully and select coverage limits that suit your actual needs to avoid overpaying.

Steps to Getting Contractor Liability Insurance

Getting the right general liability coverage for independent contractors may initially seem overwhelming, but breaking it down into clear steps can make it easier. Below is a step-by-step guide to help you run through the process thoroughly.

Finding a Reputable Insurance Provider

The first step in obtaining contractor liability insurance is finding a trustworthy provider. Look for experienced companies in your specific industry. 

You can start by researching providers online or asking for recommendations from other contractors. Make sure they are licensed to operate in your state.

Policy Comparison and Quotes

Once you have identified a few insurance providers, it is time to compare policies. Request quotes from multiple companies to understand the costs and coverage options available.

Check if it includes all the areas you want to be covered. Consider the premiums, deductibles, and exclusions. Customer support is also important, so ensure the provider is responsive and offers assistance when needed.

Obtaining a Certificate of Liability Insurance

After you have purchased a policy, you will receive a Certificate of Liability Insurance. This document proves you have active insurance coverage and specifies the policy details, such as coverage limits and effective dates. 

Many clients, especially larger businesses, may request this certificate before they hire you. Keep this certificate handy to show clients that you are insured and can take on projects with proper protection.

How Skuad Can Help with Contractor Management

While securing independent contractor liability insurance is crucial in protecting your business, managing contractors effectively is just as important. 

As your business grows and you work with contractors across different countries, staying on top of hiring international contractors, payments, and compliance can become challenging. This is where Skuad can help. 

Skuad offers a comprehensive solution for managing contractors, making it easier for you to hire, pay, and ensure compliance no matter where your contractors are located. 

With Skuad’s platform, you can streamline contractor management processes and focus on growing your business while staying compliant across various regions. 

Let Skuad take the complexity out of contractor management so you can focus on growing your business. 

Learn more about how Skuad can help!

FAQs

1. Do I need general liability insurance as an independent contractor?

Yes, general liability contractor insurance protects you from third-party claims related to property damage, bodily injury, or accidents that occur during your work, making it essential for independent contractors to safeguard their business.

2. What type of insurance do I need for a 1099?

As a 1099 independent contractor, you need general liability insurance for 1099 employees, workers' compensation (if you have employees), and possibly professional liability insurance, depending on your field of work, to protect against various risks.

3. What protects independent contractors from liability?

For liability of an independent contractor, you can use general liability insurance for contractors to cover property damage, bodily injury, and legal expenses if there is an accident or negligence in their workplace.

4. What is the purpose of contractor liability insurance?

Contractor liability insurance protects businesses from financial losses due to claims of property damage, bodily injury, or negligence. It covers legal fees, medical expenses, and settlement costs, ensuring contractors remain financially secure while working.

5. How do you pay taxes as an independent contractor?

Independent contractors must pay self-employment taxes, including Social Security and Medicare, by filing quarterly estimated tax payments with the IRS. It's important to keep accurate records of income and expenses for tax reporting.