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Most states require contractors to carry general liability insurance, whether they have employees or are sole proprietors. If the contractor has employees, he is also responsible for carrying worker's compensation insurance, in addition to the general liability insurance.
If the contractor is working for a private company, the company may require that the contractor obtain additional coverage beyond what the state requires. This is especially true if the contractor has hazardous or flammable materials on the job site.
Companies employing the contractor will typically ask to see at least one certificate of insurance, which proves that the contract has insurance coverage appropriate to the company's policy on individual risk management.
Liability-insurance policies offer protection against claims made by third parties for injury or bodily harm, property damage, negligence and loss of life or limb. By having general liability insurance, contractors provide blanket coverage for both product and public liability. This means that the policy covers indirect or direct actions of the insured contractor and his employees, which may result in damage or loss due to the fault in the product.
A contractor can have an individual risk assessment done to determine which coverage level he needs for specific areas of his business.
The majority of business owners today can benefit from having general liability insurance, because it protects the business owner from lawsuits should something happen while on the job.
Though levels of coverage vary, depending on the sector of construction and the state, most states do require that contractors have general liability insurance.
Requirements for municipal and state contracts might be different than those for private-party contracts. The recommended minimum coverage for most situations and contractors is $2 million.
Typically, contractors can bid on jobs without having to show proof of insurance. However, before work can begin, proof of an original insurance certificate is required. If the contractor carries the standard $2 million policy, he can usually avoid delays in starting projects.
In addition, many contractors require their subcontractors and each of their employees to carry their own general-liability insurance policy. In these cases, the standard $2 million policy is not uncommon. By carrying their own policy, employees and subcontractors can reduce the cost of the contractor's general liability policy, in addition to reducing the employer's overall liability.
It is important for employees and subcontractors to have their own insurance policies, because they are separate entities. These single-person policies are sometimes called professional liability policies, and are similar to medical professionals' malpractice insurance policies.
Though some contractors will only carry the minimum required liability insurance, buying excess general-liability insurance coverage is desirable to contractors who own large contracting businesses. These contractors prefer to insure their businesses for more than just what the municipality or state requires of them. Often, these policies offer coverage up to $5 million, and sometimes more. These policies are purchased as a tool to streamline the bidding process. If a contractor has excess general liability, any delays in starting the contracting job will most likely be eliminated. In addition, policies of this nature also add more insurance coverage as a precautionary measure.