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    Getting the Proper Insurance as a Contractor

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    Whether you work on residential homes or commercial buildings, renovations, electrician work, or air ducts are complicated and often dangerous. There are sharp tools, heavy machinery, and plenty of other risks. You also need to worry about the business aspect of your job, such as investing in the proper equipment and worrying about government regulations.

    Here, we explain some of the risks associated with your contractor business and how you can mitigate these risks with commercial general liability insurance and equipment insurance.

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    Commercial General Liability Insurance

    General liability insurance is a foundational policy for Canadian contractors. Some provinces legally require you to purchase liability insurance to practice as a contractor. This policy ultimately protects you in case an accident occurs, and you’re sued as a result.

    For example, you, your employee, or your subcontractor may mishandle something and cause unintended damage to the client’s property during the process of a renovation. If you’re sued, general liability insurance can cover legal fees and cover damage awards that are paid out if you’re found legally liable.

    Your insurance can further extend to where you damage a third-party’s property, such as a neighbor’s home or a municipal structure.

    Liability insurance can also cover lawsuits related to personal injury. Imagine your client comes into a partially renovated property to inspect the progress. Maybe you didn’t secure something overhead correctly, and it then drops and injures your client. You may again be held legally liable in this situation. However, general liability insurance can cover any related legal fees and damage awards.

    It’s important to understand the dollar amount your insurance policy covers. For example, if your policy only covers up to $500K and you’re sued for $1 million, you could be liable for the difference and any legal expenses. However, the scope of coverage is also essential to consider. A policy may not cover everything under the sun. You don’t want to fall into an unfortunate circumstance and find out you’re not covered.

    For instance, if you or someone on your team causes damage to an oil tank, which causes environmental damage to a nearby pond. This could result in expensive clean-up costs and municipal fines. Not all general liability insurance policies would cover such a situation. Some insurers would only cover this risk through a rider (an additional coverage add-on) or an entirely separate policy.

    Related: What is the average cost of contractor insurance

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    Equipment Insurance

    You can’t do your work without all your tools. Equipment such as a portable concrete mixer or groove cutter is expensive, so replacing (and sometimes fixing them) is costly. Insurance can protect your equipment if it breaks, goes missing, or gets stolen. Although equipment insurance is generally not mandatory, it helps contractors mitigate the risk that expensive equipment could break or disappear at any time. An equipment insurance policy can provide an amount to repurchase your equipment or repair it, up to the amount that the insurance policy offers.

    Similar to general liability insurance, you should consider the scope of your equipment insurance policy. Suppose you have a warehouse where you keep lumber and other materials. In that case, some equipment policies may not cover the replacement cost of such material if your warehouse was broken into or destroyed. Often, such coverage has its own policy or is part of commercial property insurance.

    Also, ensure whether your equipment policy covers borrowed and rented equipment. You may not have all the materials you need for a job and need to rent or borrow it from a business or friend. If the tool suddenly breaks or goes missing, you could be on the hook for replacing it. But if your insurance covers borrowed and rented tools, you won’t have to sweat.

    General liability and equipment insurance are two of the central policies to consider as a contractor. These coverages can mitigate risks in your business, so you can focus less on the worst-case scenario and more on finishing your next project.

    Related: Self employed vs independent contractor

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    Originally published June 25, 2021, updated August 25, 2023

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