Applying for contractors insurance has become a necessity in the modern-day world. It helps you prepare for the unforeseen and compensates you for the financial liabilities in case of an accident.
Yet, the question still stands: how much does it cost? The answer to that isn’t as black and white because it depends on a variety of factors.
But first, if you want to learn more about what contractors insurance is and how it works then you can read all about it in our comprehensive guide to contractors insurance.
With that said, let’s briefly discuss what contractors insurance can do for you and then directly jump towards analyzing its cost.
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What Contractor Insurance Can Do For You?
Whether you are a business owner or independent contractor accidents and injuries can happen in the blink of an eye. Not only can that disrupt your workflow, but it can also put a huge dent in your bank account.
While contractors insurance wouldn’t help you prevent the accidents, it can act as a backup plan by cushioning the financial burden.
However, before you apply for it, you must ask for a quote, and even before that, you need to understand what your insurance policy covers.
How Much is Contractors Insurance?
The cost of contractors’ insurance is determined by a variety of factors. But in short, it includes the policy you choose, the number of employees you have, the previous track record of your business, along with the condition of your equipment.
However, it still isn’t that straightforward, because contractors’ insurance covers multiple grounds. So let’s start by looking at the breakdown of the cost according to the individual policies that come under it.
On average, general liability insurance for contractors costs around $30 per month adding up to about $360 per year. The policy provides full protection against third-party injuries, property damages, and advertising injuries.
Keep in mind that by combining general liability insurance with commercial property insurance you can save a significant amount of money.
The worker’s compensation insurance cost for general contractors begins at $47 per month, which is $560 annually. This policy typically covers the medical fee and the lost wages or any work-related injuries.
Commercial Auto Liability
Commercial auto liability costs around $142 a month that is $1,704 annually. This insurance covers all types of vehicles that you’ll use for your business. The policy compensates the affected parties for accidents where your company is at fault.
Contractors Tools Liability
Generally, the cost of minimum insurance paid by the contractor for their equipment is $14, which means $169 annually. The insurance usually covers the cost of damaged goods or the lost equipment. This is also one of the cheapest insurance policies you’ll find out there.
Professional liability insurance comes at $59 per month or $713 yearly protecting the contractors’ from the cost of lawsuits, or for defending against a negligence claim. In the U.S, this coverage is popularly known as errors & omissions insurance.
Generally speaking, the average painter’s liability insurance cost is around $50 a month, covering $600 a year. However, painters can bundle the general liability insurance with commercial property insurance at about $275 a month to save costs and further protect themselves.
The cost is less than $70 a month for carpenters insurance, which means $835 a year. Here the worker’s compensation cost is $290 a month, and the equipment cost is $15 a month.
A roofing business typically pays a premium price of $300 per month, which equals $3,590 a year. This contains advertising injuries, third-party injuries, or other damages. In addition, the worker’s compensation insurance is around $810 per month, while the equipment insurance cost is $40 each month.
The general liability cost for a handyman is around $65 a month that amounts to $800 a year. The worker’s compensation is $315 each month, and the equipment insurance is $15 a month.
Property Preservation Liability
Companies usually pay $70 a month for property preservation, which goes to $830 a year. The worker’s compensation is around $140, while the auto insurance and equipment insurance cost are $15 a month.
Ultimately, it’s highly unlikely that you’d want your contractors insurance policy to provide coverage for all of the risks mentioned above. So you can let us know the type of coverage you require to get a quote that’s more accurate.
What Is The Average Cost of Contractors Insurance in the U.S?
The most popular coverage among contractors in the U.S is general liability which costs an average of around $29 a month. As a business owner, you’re putting in immense effort and time to build your business, so this isn’t a bad bargain.
However, as multiple policies come under contractors insurance it can add up to $90 per month, which is still quite decent when you look at the safety it offers.
On the contrary, while it’s true that acquiring the general liability coverage alone can be quite pocket-friendly, we also have to take the numerous other risks involved that it won’t cover.
What Factors Affect the Cost of Contractors Insurance?
The insurance costs vary from one business to another. There are tons of factors that affect the cost of insurance. From the size of the business to the industry you are in.
A rule of thumb is that the more risks your business has, the higher the insurance cost. Therefore, it is necessary to know the culprits that are increasing the cost of your insurance:
Your Business Type
The size of your business plays a significant role in determining the contractor’s insurance cost. Startups will be charged differently than medium-sized enterprises, and the same applies to large-scale companies.
With that said, general liability coverage alone costs less than an umbrella policy like contractors insurance. But that doesn’t mean that buying contractors insurance is a waste. After all, it will provide coverage for a variety of different risks. So a great way to save costs is to bundle more than one policy
The Limits of Your Insurance
A higher limit policy means that a more significant amount of coverage will be offered. However, the cost of such a policy will be more expensive. It is essential that you talk to your agent and set your appropriate limits. Cut down the coverage that you don’t need.
The Cost of Your Deductible
The cost you pay from your pocket before you buy the insurance is called a deductible. If you pay a high deductible, it means that the policy cost will be low. And if you pay a low deductible, the insurance policy cost will be increased.
While the higher deductible might sound appealing, it is worth reminding that accidents can happen, and you need to pay from your pocket.
Size Of Your Business
The size of your business plays a major role on the insurance cost. An enormous business will have more property and that will add up the cost accordingly. These factors have direct effects on coverage of general liability insurance and property insurance.
The Industry You’re In
The construction industry, for example, has a reputation for high liability. So if your company handles dangerous equipment or has a lot of potential hazards, you can expect to have higher insurance costs.
If your business is making more money, it means that there is more to protect for it. This is why the higher your annual income; the higher your insurance rates will be. For instance, if you get sued, the amount of money will reflect in the settlement costs.
Another thing that affects the insurance policy is the contract that you sign for the procedure. The insurance company can assess your liability based on your previous work. This is especially noteworthy for errors and omissions coverage.
Number of Employees
Employees have a direct effect on your workers’ compensation, professional liability, and general liability policies. The more employees you have working for you the higher your coverage costs will be. Having more employees often results in a higher number of accidents, so it isn’t surprising why this makes such a huge difference on the contractor insurance cost.
Number of Claims Filed
Your past track record can make a huge difference in the cost of your insurance plan. If you have a history of filing for insurance claims, then you’ll normally be given a much higher quote than other businesses. So the greater the number of claims filed, the higher the contractors’ insurance cost.
Aside from that small businesses can also look at our tips for saving on general contractors insurance.
How To Reduce Cost of Contractors Insurance?
Usually, construction businesses apply for contractors insurance. After all, It is a risky industry with room for so much to go wrong. So it is a no-brainer that construction workers and contractors need different types of insurance to minimize the long-term loss of the company and the employees.
That’s why it is not necessary to give premium charges to obtain the coverage. Instead, here are few things that can help you reduce your insurance policy cost:
Compare Different Policies
Every business has its own different requirements, so it’s important to take your time, assess your needs and determine what coverage you need the most. After that, cut down the unnecessary coverages from your insurance policy. You’d be surprised how big of a difference it would make.
Periodical Review Of Each Coverage
You need to ensure that the policy you are using reflects your current status. For example, if you’ve recently sold or retired some items, you must eliminate them from your existing assets. Similarly, cut down the workforce and the estimated cost will drastically change. And the same applies in the case of additional vehicles.
The Worker’s Compensation Rates
The worker’s compensation insurance is the most tangible form of investment that you will make. When the agency provides you with the premium rate for 12 months, you need to take into consideration the type of projects you will be working on.
High-risk projects unsurprisingly cost higher while low-risk projects can save you big bucks. So assess the requirements of the project and negotiate accordingly.
Similarly, as we mentioned earlier you can also cut down your workforce and that will also make a significant impact on the cost of your workers’ compensation coverage rates.
Your overall approach towards implementing safety measures can play a detrimental role in your contractors’ insurance cost. Your company’s insurance premiums are partly influenced by your claims history, so it’s essential to emphasize its importance to crew members, subcontractors, and supervisors.
You can minimize insurance cost by limiting the risks of on-site accidents, providing protective equipment for individuals, and force the workers to follow work safety policy.
How is Independent Contractor Insurance Different from Company Insurance?
Contractors insurance for independent contractors isn’t the same as large companies. For instance, a website designer who works for an agency won’t need a business property or employees policy.
There are different policies for every individual and the cost is also structured according to that. But, as we’ve discussed earlier, the more you spend, the more options you’ll get.
On the other hand, a company needs to pay for several things—for example, the property, resources, product damages, and even workers compensation insurance.
Are Construction Bonds Different From Insurance?
It’s easy to mix bonds and insurance up. However, they are not the same things. Aside from having a tremendous difference in terms of cost, both have their own uses and benefits. If you don’t know the difference, don’t worry.
You’re probably familiar with surety bonds if you’ve worked with the government and signed a contract.
In the construction context, a surety bond assures that an individual contractors’ commitments will be fulfilled. This may include finishing the project, paying the subcontractors properly, or honoring the budget.
An effective surety bond must involve at least three parties: the surety, the obligee (the party who gets paid if the contractor doesn’t fulfill the obligations), and the contractor himself.
Having liability insurance is different as it has two parties: the insurer & the insured. It covers the cost of bodily injuries and property damage caused to another party by your company or employees.
In addition to general liability insurance, you may also include other policies that protect your business against the claims of your clients for inadequate guidance or misconduct.
An essential distinction between insurance and bonds is that insurance cushions your financial liabilities in case of unforeseen events, whereas, surety bonds protect the client your company is working for.
Moreover, insurance is broken down into dozens of different types, so applying for coverage heavily depends on your current needs. On the other hand, bonds simply provide a financial guarantee to the bondholders.
The four types of bonds are as follows:
- Bid bonds: You need to pay the price as promised.
- Performance bonds: It’s a promise that the project must be completed.
- Payment bonds: This ensures that the payment to the supplier will be made.
- Ancillary bonds: With this bond, it is necessary to satisfy a specific under-performance obligation mentioned in the contract.
- Contractor’s License Bonds: Many states like Arizona require contractors to have a contractor’s license bond.
You may wonder, why would I need a surety bond?
The person who owns the project and the client’s work that you are placing the bid on likely require that surety bond to perform the work. Federal and state government construction contracts cost more than $150,000, which is necessary to pay.
How Does my Surety Bond Work if I Fail to Fulfill My Commitment?
Contractors who fail to perform on their promises on the surety bond are jointly liable for upholding the obligation of the person who owns the project through the payment of the penal sum (commonly referred to as the bond provisions).
Several factors are taken into account when you apply for a surety bond, including the years your business has been active, its reputation, and how well you know the work. Your chances of obtaining a surety bond are improbable.
People often wonder why contractors insurance is more expensive than independent policies. So keep in mind that the cost of contractors insurance depends on a variety of different factors. And you don’t always have to pay a small fortune to purchase it.
Write down your insurance needs to examine what you would like covered, and just remember to check the laws of your state to know what is mandatory. After that, exclude the coverage that you do not need. Please make sure your subcontractors are covered and that you’ve addressed any gaps in coverage if you’re purchasing a policy for your construction business.
With that said, understanding how the cost for contractor insurance works and how you could reduce it is essential, especially for small business or independent contractors.
This is why if you’re looking for expert guidance, then our dedicated agents at Professional Insurance Strategies can walk you through all you need to know.
We’ve been in the insurance industry for over 20 years, and have helped hundreds of businesses get the financial protection they require. So if you operate in Arizona or nearby areas, then get in touch with us today to get a quote!