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Are you a contractor that runs a business out of your home? Whether it’s just you getting out in the field fixing a roof or painting a house, or you have a couple of employees or subcontractors helping you each day, contractor insurance is something you must consider buying. In fact, you’ll find it pretty difficult to get work without some form of business insurance coverage. A thorough plan with protection including business owners or commercial general liability insurance and workers compensation insurance is the only true way to protect yourself and your business from risk.

While you may think your contracting business is too small to require contractor insurance, the truth is, you face similar risks as the largest corporations. Anything can happen on the jobSomebody’s property can be damaged or someone can get injured. And any accident that happens can find you liable. That’s why it is so important that you protect yourself properly.

Top 5 Contractor Insurance Considerations

Any company involved in construction work, building and general contracting – even independent contractors in fields from IT to consulting – needs protection. To determine your business risk, an insurance underwriter will need to know what your business does. Using that information, they can customize a coverage plan that minimizes your risk.  You may need a customized business owner policy (BOP) while another company may require a commercial general liability policy (CGL). Both may or may not need a commercial auto policy and both may need workers compensation coverage. It depends on your type of business.

If you’re a plumber, painter, electrician or other type of tradesperson who runs a home-based business, here are the top five things you should consider as a contractor looking for business insurance coverage:

1. General Liability Insurance
   As a contractor, you can be held accountable for injuries or property damage caused by you or one of your employees or sub-contractors, ownership of property, manufacturing operations, contracting operations, sale or distribution of products and the operation of machinery.  General liability insurance will cover you if you find yourself in a lawsuit alleging that your negligence has resulted in bodily injury, property damage and personal/reputation injury to someone else. Such lawsuits can arise while the job is ongoing or many years after is finished.  Two important issues to make sure you’ve reviewed with your insurance agent:  1) the types of work you’re doing and 2) where you’re doing the work.  Some insurance companies have restrictions on certain types of projects and certain out of state locations.  As an example, some insurance policies for New Jersey-based contractors carry restrictions on work performed in the boroughs of New York City.
2. Subcontractors Insurance
   Make sure your subcontractors are insured with business insurance for both commercial general liability and workers compensation. If you’re doing business with a subcontractor year after year, routinely ask for current certificates of insurance. Confirm that you’re named as an additional insured on their liability policy, and check that the limits of liability match yours.  Too many contractors overlook workers compensation certificates of insurance for their subcontractors, so request a certificate of insurance for that as well.  Most insurance companies consider undocumented subcontractors to be employees, and they use the amount you pay them as payroll. Since payroll plays a big factor in the cost of your workers compensation insurance, your premiums could increase dramatically if you can’t provide the documentation. Don’t find yourself in this position.
3. Commercial Auto Insurance
   Just as you’d never go on a job without your tools, you should never drive your business vehicles without the proper insurance coverage. While many home business owners use one vehicle for both business and personal use, you’ll want to talk to your insurance agent about this mixed use. Your personal auto policy may not cover your business risk. Insuring all of your personal vehicles through your business can also carry significant risks, so be sure to review that with your insurance agent as well.
4. Workers Compensation Insurance
   Unless you’re a one-man operation (and even then it may still be required), you need workers compensation insurance. New Jersey state law requires you to carry workers compensation insurance (WC) for your employees, and regulates WC benefits within the contractor-subcontractor relationship. Employees of a subcontractor must be provided WC benefits if an injury occurs on the job. Benefits will be paid either by the insurance for the injured employee's direct employer (the subcontractor) or the insurance for the contractor that hired the subcontractor.  The good news is that workers compensation insurance also protects your business against lawsuits due to employment related injuries or illnesses.
5. Builder’s Risk
   This form of property insurance protects against the loss of material and labor costs during construction. In addition to insuring the materials and labor already incorporated into the building, builders’ risk insurance covers the cost of materials stored on site that are damaged or lost due to most circumstances outside your control. A separate policy typically covers loss due to theft.

Even if you operate under the most professional standards and provide the highest quality service, a client can perceive that you did them wrong. Are you protected with contractor insurance? New Jersey insurance agents at Sharer and Associates Inc can help you learn what all successful business owners know about business owners insurance, commercial general liability insurance, and workers compensation insurance.

You’ve figured out how to find a contractor. You’ve gotten multiple bids, and scrubbed references and referrals, but did you check for contractors insurance?  Maybe not.  So, why bother?

When hiring a contractor, it is very important that you check their insurance and how it extends to employees or potential sub-contractors. If the contractor doesn’t have adequate insurance protection and one of the workers gets injured on the job at your house, they could end up suing you and you might be held responsible.

Looking for Contractors? Here Are Some Tips and Questions to Ask a Contractor

Protect yourself. Only hire licensed contractors. And don’t take their word… perform a contractor license check by asking to see the insurance policy so you can make sure that it’s up to date and that the limits are adequate. It’s absolutely acceptable to ask for an insurance certificate (or binder) from your contractor. The contractor and his/her insurance agent should happily provide it. The problem is that not many people are aware of this right to see their contractor’s policy when they have questions for contractors, and therefore don’t ask for it. Any hesitation, delay or pushback from the contractor about providing a binder is a red flag signaling problems with their coverage.  To further protect yourself, you should request to be added to the contractor’s policy as an additional insured for the duration of the project.

Okay, now you have the policy. What do you look for?  Following are the three key coverages in a contractor’s insurance policy:

When you’re looking for contractors, it’s always a good idea to call the insurance company or agent listed on the binder to verify that the coverage is current and in effect.

During the contractor license check, you should also confirm your contractor’s licensing status with the New Jersey State Labor & Industries Department.  All home improvement contractors must register with the state of NJ via the Home Improvement Contractor’s Registration Act & Home Improvement Contractor Regulations. This requires home improvement contractors to register their business with the state so their insurance coverage and any complaints against them can be monitored. 

Contact the State Division of Consumer Affairs at 973-273-8090 to confirm the person is a registered home improvement contractor. And most important, if you feel you have been cheated or scammed by a business, you can file a complaint with the State Division of Consumer Affairs online or by calling 1-800-242-5846. 

If you need further information regarding how to find a contractor, or would like suggested questions for contractors, contact your local insurance company.

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