Why do subcontractors need insurance?

General liability insurance is often the first policy that subcontractors and small business owners buy. It offers liability protection against lawsuits from third-party bodily injuries, property damage, and advertising injury. Many companies won’t work with subcontractors unless they have this coverage.

If you accidentally destroy someone’s computer or server, or damage a client's home while trimming their trees or installing a new window, your general liability coverage would help you financially survive any potential lawsuits.

If someone sues you for copyright infringement over a website you created, or if you’re accused of libel or slander, your general liability policy would also offer financial protection.

Errors and omissions insurance, also known as professional liability insurance, offers financial protection in case a client accuses you of making an error on the job or failing to meet the obligations of a contract. If your employer is hit with a professional liability lawsuit, their insurance will not protect you if you’re involved. This coverage is also required in many contracts.

A business owner’s policy (BOP) combines general liability insurance and commercial property insurance, usually at a lower cost than if you bought each policy separately.

While a general liability policy insures you against damaging someone else’s property, it does not financially protect your own gear. If a fire damages your laptop or a commercial property, a BOP would provide coverage to help you face this financial burden.

Workers’ compensation insurance is required in most states for businesses with one or more employees. It offers financial protection in case you’re unable to work because of a work-related injury or illness.

For example, imagine if you hurt your back while installing a server at a job site, or if you trip over painting equipment and are unable to work for a while. Your regular health insurance might not cover a work-related injury, and you’d also be facing a loss of income. Worker’s compensation would cover your personal injury and make up some of your lost wages while you recover.

Some employers and contractors require subcontractors, like a handyman or flooring installer, to have this coverage. Your employer may be willing to add you to their existing policy, but will pass the cost of coverage on to you.

Commercial auto insurance is similar to your personal auto liability insurance, except it covers business-owned vehicles (such as an electrician's van or HVAC contractor's truck) in case of an accident. It also insures you against theft, vandalism, and weather-related events.

If you use your personal vehicle for work, your personal auto insurance policy probably wouldn’t cover you in a work-related accident.

For example, suppose you get in an accident involving your personal car while driving to a client's home for a carpenter's project. Your personal auto policy wouldn't cover any expenses resulting from the accident.

Hired and non-owned auto insurance (HNOA) offers liability protection for any personal, rented, or leased vehicles used for business purposes. It provides financial protection against bodily injury, property damage, and related lawsuits in case you’re at fault in an accident.

HNOA coverage can usually be added to your general liability insurance or a business owner’s policy. Keep in mind that HNOA coverage does not include collision damage to your vehicle, so you would need a separate policy for that.

Fidelity bonds protect your company from financial loss if an employee commits fraud, theft, or forgery against a client or your business.

Some contractors and businesses require fidelity bonds, especially in the cleaning business (e.g., janitorial services). Select insurance companies sell fidelity bonds, and there are companies available that specialize in them.