In general, insurance is a risk management strategy that a person or company may undertake to protect against money loss. The reimbursement is proportional to the money loss, so for example, if a plumber accidentally destroys pipes worth £500, his insurance company would pay out £500. This protects the worker from paying the damage and legal fees should they be sued, and the homeowner pays for the damage they did not create.
What is Contractor Insurance?
A contractor is a work that provides services and materials to the person they were hired from and can work independently or be part of a business. Many diverse professions fall into this category, like plumbers, carpenters, electricians, painters, plasterers, project managers and masons.
Contractors are often in the line of work where property damage can occur, house items may be destroyed, and clients may be unsatisfied with the service provided. It is crucial to have insurance if the client decides to file a lawsuit and sue the independent contractor or company; the insurance will help cover the legal fees of hiring a lawyer plus additional expenses like filing documentation.
Conversely, a client may prefer the contractor to have insurance, so they are not held liable to pay any damage that the contractor has done when at work on their property. In some cases, the company you are employed by or even the country may require you to obtain this insurance as this is the safest option for every party involved.
Types of Insurance
The most common type of insurance for contractors is General Liability Insurance, also known as Business Liability Insurance. It covers claims of bodily injuries caused to the customer from the contractors’ materials or services. If the client decides to sue, the contractor’s legal expenses will be covered even if they are held legally liable in some way. The term ‘legally liable’ means that you must compensate the client somehow, which is when the insurance company pays the said compensation through a third party that is NOT covered by the insurance and is not the policyholder.
General Liability Insurance also covers accidental property damage. This could be like an electrician drilling through a pipe, a plumber causing water damage, or any other defective services caused by the contractor that the homeowner must then repair. The insurance payout will provide monetary compensation equal to the damage sustained in the claim so that both parties will benefit. The contractor will not have to pay money from his accounts, and neither will the homeowner.
Lastly, this type of insurance also protects against advertising injuries. An example of this is copyright infringement, where a business with legal rights to own their work can sue someone who uses their idea or a derivative of it without permission from the copyright owner.
This is particularly useful for small businesses that take ideas from major brands as it is common for larger businesses to claim their product or service has been replicated. If the contractor or their company has General Liability Insurance, the legal fees required to refute the claim will be paid. Additionally, libel claims directed towards the client are also covered, which is defamation of character. All in all, independent contractors or businesses are protected against legal fees to cover lawsuits.
Application Process for Contractor Insurance
You must fill out an application form and send it to the insurance company to get contractor insurance. If you are an independent contractor, you have the authority to complete this yourself. However, for businesses, the director must answer it. Usually, the General Liability Insurance form has five sections:
- Company details required are the name, address, postcode and email. This is general information so that the insurance company knows who you are and can contact you and be required for legal procedure.
- Business nature includes the activities of the businesses. This is information like how many premises there are, the inclusion of work outside of the premises, services your business provides, whether you work with heat/hazardous waste/heavy machinery, the year the business was founded, and the current number of employees. This information is necessary for the insurance company to give you the most tailored and suitable contract, as they must first identify the risk factors and factor this in accordingly.
- Salaries of the employees categorised by activity and the number of workers must be provided so that the insurance company has an idea of how big the business is. Larger businesses have more employees and, consequently, need more expensive policies to cover the higher possibility of claims against them.
- Claims history lists all the prior legal accusations made against you or your company in the last years specified and what they were about. This is vital information as businesses with no claims are more likely to get lower-priced monthly insurance as the risk of more claims being made against them are lower.
- The declaration is the last section of the application process, where you must read all of the terms and conditions provided. Ensure that you do this to solidify your knowledge of the insurance details. In contrast, find information that you are apprehensive about to contact the insurance company consequently. Once you sign, you can send off the application!
The contractor insurance cost varies depending on the number of employees, the claims history, and the business activities. Prices can range from £65 for independent contractors to thousands of pounds for bigger businesses. Overall, the value of this insurance is worthwhile as it could potentially save thousands of pounds, especially for contractors that acquire a high level of risk with the services they provide and must at all costs protect themselves from suffering such loss.
Read more about contractor insurance here.
Other useful links about business insurance:
Business Contents Insurance
Business Building Insurance
Employers’ Liability Insurance
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