Independent Contractor Insurance 101: Coverage & Requirements

Commercial insurance encompasses a broad range of coverages targeted to different business needs. It’s vital to understand that every industry brings its own risks, especially if you’re an independent contractor whose duties differ from the responsibilities of an employee or a business owner.

Although you’re practically not in a direct connection with a company you provide services to, you can still be sued and held liable for a variety of accidents, damages and injuries. The expenses you may face are often high, but the proper contractor insurance can help you with that.

What is Contractors Insurance?

Contractors insurance, often called 1099 insurance, is a policy written especially for independent contractors and subcontractors who provide services or professional advice to clients or employers.

All independent contractors may be held responsible for damages. Unless they’re insured, they may end up paying for extremely high costs out of their pockets – have a look at the crucial benefits of 1099 contractor insurance and see why it is better to have it:

• It protects you and your business: Independent contractors, like any larger company, must adhere to the particular legal obligations. That means that they can be sued for damaging the client’s property, bodily injuries, or advertising injuries that happen frequently.
• Your clients may require it: Very often, clients are those who may need you to have an adequate policy before signing a contract with you. Without coverage, your clients may be held liable for any damage or accident that’s caused by your work.
• Law may require it: For example, construction workers are legally required to have independent contractor general liability insurance, but it may also be obligatory for any other industry. Also, make sure you and your client have separate liability policies.

Who Needs Independent Contractor Insurance?

Any person or entity that provides services for another entity as a nonemployee is considered an independent contractor. Unlike employees, contractors must provide benefits for themselves, including paying Social Security and Medicare payments.

Independent contractors often work for companies that are physically far away from their location, and they usually are:

• Plumbers
• Carpenters
• Electricians
• Painters
• Repair contractors
• House and carpet cleaners
• Freelancers (usually writers and editors)
• Graphic designers
• Independent salon professionals (hairstylists, makeup artists, etc.)
• Horse and dog trainers
• Sole proprietors
• Other contractors, subcontractors and self-employed tradesmen

Therefore, all of them should have contractors insurance that will protect them from financial loss that can result from work-related incidents. Also, such a policy is usually required by an employer.

What Does Insurance for Contractors Cover?

This type of insurance is also known as independent contractor liability insurance, which means that it primarily protects you from lawsuits, mishaps, and third-party property damage.

To get full protection, you’re advised to consider the following liability coverages:

• General liability: General liability is a base of all contractor insurance policies, and it consists of two types of protection – bodily injury and property damage.
  • Bodily injury: With bodily injury coverage, you will be protected in case someone gets injured or dies while working for you or while receiving your services. It covers medical bills of the injured person and legal costs if you’re sued for damages or accidents.
  • Property damage: In case you or your employee damages someone else’s property, this type of policy will cover for it. It includes building or any third-party property you’re working on, but not the item you were repairing. For example, if you damage the lamp you were fixing, it won’t be covered; but if you cause a short that starts a fire and burns down your client’s apartment, everything will be covered but the lamp.
• Advertising injury: Advertising injuries are quite frequent, and they can cost you a fortune. However, this insurance will help you cover the risk of damaging someone else’s reputation or causing loss through libel, slander, or similar dishonest activities.
• Completed operations or product: This is similar to product liability coverage, which provides coverage in case your project has an issue or causes damage to someone. Very often, it can cover all the products you sell or distribute.

What are the Other Coverages You Should Add to Your 1099 Liability Insurance?

As you may assume, contractor liability insurance cannot provide you with enough coverage. Accordingly, you’ll need to add some other plans to your premium in order to get full protection as independent contractors.

Such plans may include:

• Disability insurance: If you’re self-employed, you’re advised to buy disability insurance, which, in most cases, makes sure you receive a weekly paycheck in case of injury or illness.
• Commercial car insurance: This type of coverage is essential for all contractors who use vehicles for performing their business duties. By purchasing it, you and your workers will be protected from paying damage costs caused by a car accident.
• Equipment & tools insurance: Contractors usually works with quite expensive equipment and machinery, whose damage repairment can cost a lot. With equipment & tools insurance, you’ll get compensation for:
  • The cost of replacement for stuff that’s stolen.
  • Repairment of damaged tools and machinery.
  • Rental fees for tools and equipment while you’re waiting for yours to be replaced.
• Property insurance: Property insurance will protect your office or rented space, as well as its contents. If you work from home, you should consult your carrier and check whether your specific policy can cover business property and assets, as well.
• Errors & Omissions Insurance: This coverage will protect your business from inevitable errors that can happen sometimes. To err is human, right?
• Workers’ compensation insurance: If you run business for yourself but have employees, you’ll probably have to purchase a workers’ comp insurance. It’s required by almost every state, but some of them will require you to have one even if you don’t have employees.
• Business income insurance: This coverage is also known as business interruption insurance, and it comes in handy if your business gets affected by fire or some other incidents that prevent it from operating. This plan will provide you with income compensation while you’re waiting for the necessary replacements.
• Business owners’ policy (BOP): The BOP is essential for every business owner since it includes various necessary coverages at a lower price. You can ask your insurer whether they can craft a comprehensive and cost-effective policy that would include all the coverages that you need as an independent contractor.

What about Unemployment and Health Insurance for Independent Contractor?

People who run their own business can enroll through the individual Health Insurance Marketplace to get flexible and high-quality health coverage.

You are eligible to enroll through the Marketplace if you’re a consultant, freelancer, independent contractor, or sole proprietor who has no employees. If your business has at least one worker other than yourself, such as a spouse, family member, or owner, you may use the SHOP Marketplace for small business, which is suitable for yourself and your employees.

The Marketplace offers four categories of insurance, which are bronze, silver, gold and platinum. All the groups are cost-effective, and you need to fill out the application first to know whether you’re qualified for any plan.

Apart from the Marketplace, independent contractor health insurance can also be got via:

• Medicaid
• Consolidated Omnibus Budget Reconciliation Act (COBRA)
• Private Insurance Companies or Agencies

When it comes to unemployment insurance, an independent contractor is not eligible for benefits that employees usually receive after they’ve lost their jobs. However, if you’re self-employed, you may be able to collect unemployment benefits if your business is incorporated and pays into unemployment.

How Much Does Independent Contractor Insurance Cost?

The cost of independent contractors insurance will mainly depend on the coverages you choose to add to your premium.

Let’s take an independent IT professional as an example – their premium will probably include the following coverages:

• General liability insurance: $425-$483 per year.
• Umbrella coverage: $475 per year.
• Workers’ comp: $640-$1.100 per year.
• Errors & Omissions: $860-$950 per year.

However, if you bundle various policies at the same insurer, you’ll probably be eligible for certain discounts.

What are the Benefits of Independent Contractor Insurance?

The most significant benefit of any insurance is risk reduction, which provides more than just peace of mind. Even if you’re facing the most difficult situations, you can feel safe knowing that your insurance policy will help you.

Here are some of the benefits of contractors insurance:

• Financial security: Steep costs of lawsuits can affect your business permanently, which means that you may not be able to invest in your tools, inventory and all the things that are vital for performing your business seamlessly. However, insurance may prevent such an event.
• Coverage of your legal defense costs: Even if you leave the court as a winner, you’ll still have to pay legal costs since you were called to defend yourself. If you’re insured, all the mentioned expensed will be paid.
• Avoid bankruptcy: No matter if you are at fault or not, a lawsuit can make your business lose a lot of money. An adequate insurance policy will allow you to continue with your business without having to worry about bankruptcy.
• Proof that you meet then requirements: Knowing that you meet independent contractor insurance requirements, employers from different states will be glad to give you an opportunity to work for them. Without insurance, you won’t be legally eligible to work with other entities.
• Clients will hire you much easier: Clients are those who often require contractors to have insurance. The insurance will guarantee that you are protected from accidents and other incidents that would otherwise affect the client.
• Other businesses and contractors will hire you with more confidence: All the subcontractors that wish to work with other companies and contractors should have an insurance policy to prove that no one will be exposed to risks. When you show them that you own separate policy, you have more chances to get hired.

What Happens If You Don’t Have Insurance for Contractors?

The major risk of being uninsured lies in significant financial losses you may face due to lawsuits or some different unforeseen incidents. Still, that’s not all.

You should be aware of the fact that not all the clients will be glad to hire a contractor who has no insurance. They may take your business less seriously then, and they may see you as less experienced and less business savvy than someone who’s insured.

An uninsured contractor may bring certain risks to a client who’s decided to give him/her an opportunity. Some of those risks are:

• Contractor injuries: If a contractor gets injured while on homeowner’s property, a homeowner will be held liable and have to pay a significant amount of money either out from their pocket or homeowner’s policy. It usually happens when a contractor doesn’t have a workers’ comp, general liability, or property insurance.
• The cheapest quote: When clients hire a contractor with the most competitive quote than the other bids he or she received, they may be at risk of delaying the process and go through some stuff again. Namely, contractors with the cheapest quotes are usually uninsured, which is why Homeowner’s Associations or similar offices sometimes won’t let them do the job.
• High costs: If clients hire companies that have no proof of general liability insurance, they are at risk of paying for damage caused by contractors. For example, if employees from the company you’ve hired steal something for you, and they don’t possess general liability insurance, you will have to compensate for the replacement of the stolen items.

Additionally, you may not be legally able to collaborate with some businesses or work in some locations if you don’t own adequate general liability insurance for contractors.