Subcontractor insurance is a policy covering the risks involved in the job of a subcontractor. These professionals are recruited by contractors, particularly in construction jobs. Even though subcontractors are equally at risk, insurance programs usually only cover the primary contractor. Therefore, the liabilities and risks involved in the job are laid on the subcontractor without insurance coverage. This is where subcontractor liability insurance comes into aid.
Read on to know more about the risks involved in the daily job and the requirements and types of subcontractor insurance.
When Should Subcontractors Get Insurance?
Standard contractor insurance does not cover subcontractors. Hence, they must have a separate insurance coverage to protect themselves in case of injuries or accidents. The risks involved are even more severe in complex and large-scale projects.
Even subcontractors working in IT or telecommunications sectors, must have subcontractor liability insurance that would protect them or minimize their liabilities if the employer blames them for any mishap.
Requirements for a Subcontractors Insurance
Subcontractors must submit multiple documents in addition to their primary contractors fulfilling specific requirements for their insurance.
Thus, to ensure a smooth process, you need a reliable subcontractor agent like Multiplier that can cater to both yours and the primary contractor’s needs.
Some of the essential insurance requirements are:
Certificates of insurance (COI)
This is considered as the legal evidence of insurance and details everything the insurance covers. It must also mention any additional provisions or requests by the contractor/employer, like subrogation waivers. A COI proves that both the parties agree to take responsibility for their work.
Subcontractors who undertake multiple contracts in a month or year would have various insurance plans. This indicates that they may face obstacles regarding insurance limits, further affecting their contractor’s insurance policy. When you have a per-project aggregate, there will be a limit to the insured amount, and hence, your contractor will be able to get the claim via subcontractor insurance.
Subcontractor and independent contractor coverage
The subcontractor policy should encompass the scope for subcontractors and independent contractors as a protective measure against lawsuits raised by the latter.
General liability insurance
This is essential insurance coverage that embraces comprehensive coverage for any damage to property or people, personal or advertisement loss during the subcontractor’s service. It protects the subcontractor from financial losses arising due to mishaps in their service.
Workers’ compensation for subcontractors is not mandatory but may be required if you work in specific fields, such as construction.
Professional Liability Insurance
This is crucial for IT subcontractors. It mainly protects subcontractors against claims or blame from unsatisfied clients.
What are the Different IT Subcontractor Insurance Policies?
Subcontractors can consider any one of the following insurance policies that best suit their needs:
Errors and omissions insurance
Also referred to as Professional Liability Insurance, E&O insurance is exclusive insurance for IT subcontractors to protect them from unhappy clients. As the name suggests, this insurance covers the errors, omissions, or things that one could have neglected while doing business with a client. It grants protection from all financial risks related to unsatisfied clients, giving subcontractors a chance to defend their cause if they were not guilty. If you don’t have this insurance, you will fall under the ‘default judgment’ category and must pay what your client claims from you.
Commercial general liability insurance
This insurance protects a subcontractor from any damage incurred to property or documents and medical or legal expenditures incurred if someone is injured. As a subcontractor, you can buy your own Commercial General Liability Insurance or ask your contractor to include your name in the company insurance. This insurance can protect you from financial losses if you accidentally damage a client’s asset or if anyone sues you for copyright infringement.
Business owner’s policy
BOP or business owner’s policy combines general liability insurance and commercial property insurance at a discounted rate. While general liability insurance safeguards you if you accidentally damage someone else’s assets, BOP offers coverage for any damage to your assets.
Workers’ compensation insurance
Workers’ compensation for subcontractors in IT is another vital insurance that protects against any injuries suffered on the job site. If subcontractors do not purchase this insurance, their contractors may add them to their policy. Again, however, the subcontractors have to bear the insurance coverage costs.
Advantages of Subcontractor Insurance
When subcontractors are recruited, they are usually not insured by their contractors since they are not employees. In this case, subcontractor insurance is imperative for subcontractors to protect themselves from the risks involved in their jobs.
Here are two major benefits of having subcontractor liability insurance.
Defense against lawsuits
Since employers or contractors often do not include subcontractors under their insurance policy, subcontractors are liable to a greater chain of risks. This becomes even more serious if the contractor or the client tries to shift the blame on you by filing a lawsuit. Thus, signing up for insurance protects you from expensive lawsuits.
Subcontractors may have a greater chance of getting recruited if they already possess insurance coverage. Since the contractor will not worry about covering your insurance costs, you will become a desirable candidate.
Risks Involved in Subcontracting
Often IT subcontractors face several risks on their job. Here are some reasons why they should opt for subcontractor insurance:
Destruction of client computer
While working at a contractor’s office fixing issues with a third-party app or any other technical problem, if an IT subcontractor accidentally damages the computer hardware or software, general liability insurance can help them pay off any financial losses incurred.
Damage due to smoke or water
If a fire breaks out at the contractor’s office, the contractor’s general insurance policy will cover the damage to physical property. The subcontractor can use their BOP plan to protect their assets and cover any financial obligations.
If an IT subcontractor gets injured while performing their duties at the client/contractor’s office, the workers’ compensation insurance for subcontractors will cover medical expenses and arrange medical rehabilitation, if necessary.
A subcontractor hired to conduct confidential data analysis can accidentally cause a breach of sensitive data due to negligence or errors on the job site. If the dissatisfied client/contractor files a lawsuit against the subcontractor, the E&O insurance can safeguard them from cyber liabilities.
Should Contractors Include Subcontractors in their Insurance Plan?
Generally, the contractor’s general insurance policies do not cover their subcontractors. However, since hiring subcontractors for specific projects is often advantageous, extending the insurance cover to them is recommended. But this would inevitably increase the premium rates.
As a contractor, you can either ask them to bear their coverage costs or ask for mandatory subcontractor insurance while hiring. Either way, your subcontractors will remain protected against the physical or financial risks involved in the workspace.
What is Subcontractor Liability Insurance?
Some contractors make it compulsory for subcontractors to purchase owners’ and contractors’ protective liability coverage to cover any losses arising from the subcontractor’s mistakes. This allows contractors to save substantial costs that may arise out of the errors or incompetence of their subcontractors.
Cost of Subcontractor Insurance Plans
Typically, general liability insurance for subcontractors is around $500 to $800 per year, but it may vary from one industry to another. On the other hand, commercial property insurance would cost about $400 to $1200 annually, varying according to the number of items covered.
If you wish to purchase workers’ compensation insurance for subcontractors, you may have to shell out anything between $800 and $3000, depending on the industry and line of work. A BOP is the cheapest plan, costing around $350 to $500, based on the kind of trade, the items that one would like to cover, their prices, etc.
As a general thumb rule, the greater the risks involved, the higher will be the coverage costs. Apart from this, location also determines the cost of insurance plans since different states have unique rules and pricing slabs for subcontractors’ insurance policies.
Choosing the right subcontractor insurance plan can be confusing, especially if you aren’t aware of the risks and protection you need. In such cases, firms like Multiplier guide you through various insurance policies for subcontractors to better understand the costs, benefits, and coverage while also comparing the insurance quotes online.
Our experts will help you pick the right insurance, protecting the interests of all the parties. Get in touch with our experts to know more.
Frequently Asked Questions
Q. Is contractors’ insurance the same as subcontractor insurance?
No, contractor insurance might offer little insurance coverage for subcontractors with caveats. However, a subcontractor’s insurance must have the subcontracted party’s name listed on the policy document.
Q. How can I compare various insurance policies?
Looking up policies online and getting a free quote from relevant companies are your best option in this context.
Q. Is subcontractor insurance helpful for risky industries?
Yes, it is helpful and a must-have for subcontractors working in high-risk industries. This is because subcontractors may face severe injuries while working on site.