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Protecting Yourself as an Independent Contractor

independent contractor

Independent contractors don’t always know what kind of insurance is needed for financial protection. Often it depends on the type of work you do. Maybe you work at a desk performing data entry or digital marketing services, or perhaps you work on other people’s property providing home maintenance, or maybe you offer construction services. There’s lots to consider. Let’s break it down.

Here are some of the main things you will need coverage for:

  • Errors and omissions (E&O): Contractors who provide consulting and advice, such as accountants, financial planners, interior designers, and landscape architects, need to be concerned about liability risks due to losses a client may experience as a result of the contractor’s recommendations.
  • Bodily injury and property damage: Contractors who work with heavy machinery and tools, such as plumbers, re-modelers, and electricians, need to be concerned with mishaps due to hazards such as power tools, defective machinery, and compressed gas.
  • Product and liquor liabilities: Independent contractors who serve food and alcohol at functions need to be concerned with potential injuries and illnesses due to food and alcohol served.
  • Medical and disability: As a contractor, you are most likely not on a group plan to cover your own injuries, which can leave you exposed to a loss of income risk if you become ill or injured.

What type of contractor are you?

There are many types of independent contractors who all need independent contractors liability insurance and other coverage to match their specific risks. These professionals include:

  • Independent construction contractors
  • Plumbers, carpenters, electricians, and painters
  • Repair people
  • House and carpet cleaners
  • Freelance writers, editors, and graphic designers
  • Independent hair stylists, and salon professionals
  • Horse or dog trainers

So, what is independent contractors liability insurance?

Getting the right independent contractors liability insurance in place can protect you from lawsuits, mishaps, and third party property damage that can devastate your business.

Normally, you will need a few different categories of coverage for complete liability protection:

  • General liability: The foundation of all contractor insurance coverage is a general liability policy. This coverage will provide two types of protection:
    • Bodily injury: Provides coverage if you or someone you employ causes injury or death to a third party during the course of work. It provides for medical care for the injured person and covers your legal defense if you are sued for damages.
    • Property damage: Provides coverage if you or one of your employees causes damage to property belonging to others. This includes the building or property you are working on or any third-party property.
  • Completed operations/product: Provides coverage in case a project you finished has an issue or causes damage. It can also extend to any products you sell or distribute.
  • Advertising personal injury: Covers the risk of damaging another’s reputation or causing a loss through slander, libel or false advertising claims.
  • Contract liability: This covers you in a contract dispute. It is not always included in general liability coverage so verify that you carry this coverage with your insurer.

The specific independent contractors liability insurance coverage you need will be unique to your business. By working with a knowledgeable agent, you can ensure that you don’t have critical gaps in coverage that could leave you exposed to expensive legal claims.

What is a business owners policy or “BOP”?

The contractors general liability coverages can often be bundled with a few other coverages to create a business owners policy, or BOP. This serves two purposes. It expands the policy to cover risks that small business owners face, and also typically results in a discount on the cost of your insurance.

Normally, this coverage will make sense for you if you have employees. A small business has up to 100 employees and generates about $5 million or less in annual revenue.

Some of the additional coverages that can typically be bundled with a BOP include:

  • Property damage: This insurance covers your owned or rented property if it is damaged. This includes office buildings, storage facilities, warehouses, workshops, or garages. It does not cover commercial vehicles.
  • Business income: This protects you from loss of income if your business is interrupted due to a covered loss. It usually covers income and operating expenses for up to 12 months.
  • Commercial vehicle: Insures your cars, trucks, vans, specialized trucks or any vehicles used for business purposes.

Do you need workers compensation?

As an independent contractor, you may or may not need to have workers compensation insurance. Workers comp regulations are mandated state by state. Most likely, you are not required to buy workers comp if you do not have employees. However, in some states you need to purchase workers comp even if you don’t employ others.

If you are a contractor who employs other workers, your state will most likely require you to carry this insurance. This policy protects workers from job-related illness, injury, or death. It will also reimburse workers for lost wages if they cannot go back to work. The benefit to you, as the employer, is that this coverage can help to prevent losses from employee lawsuits.

Should you consider professional liability coverage?

When you are looking for the right contractors insurance for your business, you will have many choices, including whether to buy professional liability insurance, also known as errors and omission insurance or “E&O.”

E&O is a liability policy that protects you if you make a mistake that causes a financial loss to a client. Similar to general liability, it will provide legal defense and claims settlements, if necessary.

You may want or need this coverage under the following circumstances:

  • You provide professional advice in your line of work. This can include everything from recommending a particular type of plumbing or wiring to providing interior design services.
  • You hire employees or subcontractors who provide any sort of advice or consulting services.
  • Your state requires you to have E&O insurance due to the work you perform.

It is a good idea to insure subcontractors with professional liability.

Compare options and find the right contractors insurance

Putting together a business insurance plan to secure your business is an important step, particularly if your business is growing, you are adding new employees or taking on larger jobs and bigger risks. There are many options and possible coverage types, so it is important to get the help of a trained professional to customize coverage to your business risks.

Some of these trained professionals may be:

  • Attorneys
  • Financial planners and accountants
  • Insurance agents

Obviously, you’ll need to work with an insurance agent to buy a policy, but financial planners and lawyers can help you understand your risks before you go seeking insurance. If you have colleagues who are also independent contractors in a similar field, they may also have tips and tricks to share with you. There are lots of online resource guides for you to refer to as well, including:

Each of these will explain the different coverage options you have and give helpful tips for setting up your business in a safe and efficient way.