What You Need to Know about Insurance for Contractors

A contractor’s incomplete work or mistakes could become your financial responsibility if they don’t have their own insurance. For example, if you hire a contractor to complete work on a project for a client, the client can sue you over the contractor’s errors or unfinished work. If the contractor has insurance, however, you can recover your losses.

Similarly, if your contractor doesn’t finish their work for your business, you can take action to recoup your losses.

To verify whether your contractor has coverage, ask to see their certificate of liability insurance.

Three Policies You May Want Your Contractor to Carry

Depending on your industry, the contractors you hire could have numerous insurance policies, or none at all. The three policies below offer protection for common business-related lawsuits:

1. General liability insurance covers third-party bodily injuries or property damage that a contractor may cause you, your employees, or another third party. It also can pay for libel or slander lawsuits and product liability lawsuits. Because accidents are unpredictable, it’s a good idea to make sure any contractors you hire at least have this policy.

2. Professional liability insurance, also known as errors and omissions insurance, can pay for professional oversights or incomplete work. For example, let’s say you own a small advertising agency and hire a freelance copywriter. If they produce plagiarized content and your client holds your firm accountable for it, you can recover your losses from the writer’s professional liability coverage.

3. Workers’ compensation insurance may be a useful policy for your contractor to have, especially if they work for you long-term. Per some state laws, an ongoing contract may help classify the worker as an employee, not a contractor. When that happens, your company would owe the worker certain employment benefits, such as workers’ comp coverage, unemployment insurance, and more. If the contractor has their own workers’ comp policy, it helps prove they are in business for themselves and are not your employee. Their workers’ comp policy can also cover their work injuries so they are less likely to try to recover those medical expenses from your company.

When to Add Contractors to Your Insurance Coverage

In some cases, it might make sense to cover a contractor under your own business insurance policies. For example, let’s say you need to hire a few workers to help out for a month on a particular project. You found a few people who are available to work, but they don’t have their own insurance coverage. In this instance, you can add them to your policy as an “additional insured” for the days they will work for you.

Some additional insured endorsements are very specific and will only cover the exact person or company listed in the endorsement. Others may cover anyone who meets the definition of additional insured in the endorsement. In both cases, coverage is usually more limited for the additional insured than it is for the policyholder.

Your insurance provider can help you temporarily add subcontractors to your policy. It will cost you a little bit more, but it also helps you manage your risk more efficiently because your policy can cover the contractor’s mistakes.

Rebecca Hosley is a writer for Insureon, a leading provider of online small business insurance. She is based in Chicago and writes frequently about small business insurance and tech startups.