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Do Independent Contractors Really Need General Liability Insurance?

The short answer is YES. Independent contractors need insurance for a variety of reasons.

IMPORTANT: You do not have to be at fault to be sued. If you are sued by a client, then you will have to take the time to deal with the lawsuit and spend your own money on a lawyer, even if you have done nothing wrong. Independent contractors can and do get sued all the time. Insurance protects you if you do cause harm or have an unhappy client.

What happens if you do not have insurance?

Your risk of incurring huge losses as a result of a lawsuit increases if you do not carry insurance. If you are sued and you lose in court, you will be responsible for any damages you are held liable for, and for your legal fees as well. Not having insurance causes other issues too. Clients may be reluctant to hire you if they learn that you are not insured. They may also take your business less seriously if you do not carry insurance.

A contractor that does not have insurance is often perceived as not being very business savvy or experienced, or as someone who cuts corners. You may not be able to legally work in some locations if you are not insured.

Another factor to consider is that if and when you get sued and lose in court, the ability to get any insurance coverage in the future will be difficult to get and if you are offered an insurance policy, it will be very expensive.

What Is General Liability Insurance?

General liability insurance, which can also be referred to as commercial general liability insurance, is a type of insurance policy for your business that would cover your legal expenses if you are sued by someone who is not your employee. While individual policies vary, a liability policy will usually cover the following types of situations:

  • Bodily injury caused to someone else (who is not your employee)
  • Slip and fall accidents
  • Copyright infringement
  • Product liability
  • Slander and libel
  • Property damage

General Liability Insurance in Action

Example 1: A carpenter puts down his tools for a moment to grab something from his truck. While he is doing this, the client wanders over to inspect the work and steps on a tool, damaging his foot. The client sues the contractor. The contractor’s insurance covers the damages and pays for the carpenter’s legal defense too.

Example 2: A painter is working for a business, redoing the conference room. A visitor steps in to see what is going on and slips on the drop cloth, falling and breaking her ankle. The visitor sues the contractor in court and is awarded damages, which are paid by the insurance company via the policy.

Example 3: A landscaper is working on a lawn and loses control of the mower. It bangs into a parked car, causing damage and requiring extensive repair. Liability insurance covers the damage and any legal costs the contractor experiences from the accident.

Benefits of Insurance for Independent Contractors

Since insurance reduces your risk, having it can provide peace of mind. You will know that even if something goes wrong, you will be covered. In addition to that important peace of mind, insurance coverage provides the following benefits to independent contractors:

  • Financial security – One accident or lawsuit will not take away your business and years of hard work. The cost of a lawsuit can quickly make it impossible for you to continue buying inventory or performing work. Insurance allows you to continue working even during a lawsuit.
  • Covers the costs of your legal defense – Even if you win a lawsuit you will still have to pay legal fees, unless you have insurance to cover them. You may be faced with extensive legal fees when you are called to defend yourself in court. If you lose, you will also have to pay for any damages, unless you have insurance.
  • Allows you to avoid bankruptcy if you are sued – Whether you are at fault or not, a lawsuit could derail your business. You may end up facing bankruptcy after a single lawsuit, leaving you with no way to continue running your business. Liability insurance helps you to avoid bankruptcy and continue operating as usual.
  • Ensures you meet requirements – Having insurance means you are able to work in states that call for mandatory insurance for contractors or for those working on job sites. In some locations, you may not be able to legally work if you do not have the proper insurance coverage.
  • Makes it easy for a client to hire you with confidence – When you are insured, your clients not only know that they are protected in the event of an accident, but they also know you care enough about your work and business to truly be prepared for any eventuality.
  • Makes it easy for another business or contractor to hire you, worry-free – If you are a subcontractor and wish to get projects or jobs from a general contractor or other business, you need to be able to demonstrate that hiring you will not expose them to additional risk. While you can be covered under their policy, arriving with your own policy saves them time, money, and hassle.
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