Contractor vs Subcontractor: What Insurance Do You Need?

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Whether you’re a plumber, electrician, welder, or general contractor, you know you need adequate business insurance coverage to protect you against the many potential hazards on a jobsite.

But are you aware that your needs are slightly different when working as a contractor vs. subcontractor?

To a layperson, these terms might be interchangeable, but when you understand the differences between them, your insurance needs will make a lot more sense.

Let’s dive into the distinctions between contractors and subcontractors, explore their unique insurance needs, and provide guidance on how to choose the right insurance coverage.

 

Contractor vs Subcontractor: Definitions and Examples

A contractor is an individual or company hired by a client to manage and complete a specific construction project. Subcontractors, on the other hand, are hired by contractors to perform a specific or specialized job.

For example, say a homeowner hires a handyman to renovate their kitchen. The handyman has a lot of experience installing cabinets and hardwood flooring, but not as much experience with electrical work.

Rather than telling the homeowner to find their own electrician, the handyman hires one themselves and oversees the job. In this case, the handyman is the contractor, and the electrician is the subcontractor.

It’s possible for the same company to work as a contractor for one job and a subcontractor on another one—it only depends on who hired them to complete the work.

For example, once the kitchen reno was completed, that electrician might end up working as a contractor rewiring a house down the street. Subcontractors can even hire subcontractors of their own.

 

Who Carries Insurance?

How does insurance coverage work when both a contractor and subcontractor are working on the same project?

Any building project carries the risk of property damage, bodily injury, or a slew of other hazards. (After all, you’re working with power tools.) The question you need to ask isn’t just “How can I prevent accidents from occurring?” but “What happens when an incident occurs?”

To best answer this question, you must check your insurance policies closely to see what is covered.

For instance, there’s a good chance that your policy does not cover loss or damage caused by any subcontractors you hire. Therefore, it is your responsibility to make sure that any subcontractors you bring on have adequate insurance coverage of their own.

You can verify this by asking them for a Certificate of Insurance, which will list the various types of insurance policies they carry, as well as the policy limit.

To further protect yourself against the damage a subcontractor might cause, you can also ask that they add you as an additional insured.

What Is an Additional Insured?

Any time you bring on a third-party to complete work that you were hired to do, there are risks. After all, if anything goes wrong, you’re the one who will likely be held liable.

However, you can reduce some of that risk by having subcontractors add you as an additional insured on their policy. This will allow you to file a claim through their coverage instead of yours.

In the event that your subcontractor damages one of your tools or breaks the client’s refrigerator, the claim will be filed on their insurance policy, keeping your claim history low.

 

Insurance Needs for Contractors and Subcontractors

The right insurance is a must-have for any business, but contractors and subcontractors need extra protection.

Further, the right policy can cover not just your own business, but your employees and clients, which goes a long way toward building trust.

General Liability Insurance

General liability coverage is included as part of a Business Owner’s Policy (BOP) for a reason; it’s an incredibly essential form of insurance that every business owner can benefit from.

A general liability policy helps protect you from legal fees associated with damage (property damage, bodily injury, and even things like slander/libel) to a third party.

Workers’ Compensation Insurance

In Florida, any business working in the construction industry is required by law to carry workers’ compensation coverage for all employees.

Workers’ comp provides medical care, wage replacement, and rehabilitation services for employees injured on the job, regardless of who was at fault.

Commercial Auto Insurance

If you use a vehicle to move tools, equipment, and workers from job to job, commercial auto insurance is a must.

With more than 85,000 vehicle crashes in Central Florida in 2022, this is a risk you simply cannot afford to take.

Builder’s Risk Insurance

As any contractor or subcontractor can tell you, an unfinished building or project is full of potential.

It’s also full of valuables that deserve to be protected.

Builder’s risk insurance protects you from things like fire, theft, vandalism, and acts of God that may arise before the building is completed.

Professional Liability Insurance

No matter how much experience you have, everyone makes mistakes occasionally. Thankfully, professional liability insurance—also known as errors and omissions insurance (E&O)—helps protect against claims related to design errors, project delays, and other professional mistakes.

This coverage is particularly important for professionals with specific skills or expertise, such as electricians, engineers, or specialty trade subcontractors. E&O insurance can help cover the costs of legal defense, settlements, and judgments if a client alleges that the professional’s negligence led to financial losses or other damages.

Surety Bond

Surety bonds are very similar to insurance. However, whereas insurance is an agreement between an insurance carrier and a policyholder, bonds involve an additional party.

For example, contractors may require that their subcontractor get a surety bond. Under the terms in the bond agreement, if the subcontractor is unable to complete the job, the insurance company will pay the contractor to hire someone else.

 

Choosing the Right Contractor Insurance Coverage

The differences between contractor vs subcontractor might not seem significant, but they have widely different insurance needs.

And when you’re looking for insurance, it’s vital that you and your insurance agent understands that.

At Harry Levine Insurance, we have been one of Orlando’s top independent insurance agencies for more than 30 years. During that time, we’ve helped hundreds of construction companies, electricians, plumbers, and general contractors just like you build a network of coverage to keep themselves protected.

Whether you’re a general contractor overseeing a project or a subcontractor working on a specific task, Harry Levine Insurance can help you navigate the complexities of contractor insurance and find the right coverage for your specific needs.

Don’t leave your construction projects exposed to risk. Contact Harry Levine Insurance today to learn more about our insurance solutions for contractors and subcontractors in Florida.

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