“The QV Building construction site in Melbourne, Australia in 2002”, by Diliff, licensed under CC BY 3.0. Original image has been cropped.
For contractors in the building industry, it’s important to know what insurance you need.
As a contractor, you’re essentially self-employed, and this brings with it a number of different responsibilities, one of them being insurance.
There are a number of different types of insurance that a contractor will need, and a number of others that are highly recommended.
In this guide we’ll take a look at each of them, with the aim of giving you a better understanding of what you actually need and what else is recommended.
Public Liability Insurance
This is the number one insurance type for a tradesman or trades business operating as a contractor or subcontractor.
Many contracts that you enter into will have a requirement for public liability insurance, and they may even stipulate a minimum amount of cover required.
If no minimum is stipulated you could go with the minimum available amount of $5 million, or the contract may set a higher amount of $10 million or $20 million.
Why do you need your own public liability? It’s because as a contractor you are responsible for your own actions. If your negligence results in property damage or personal injury to a third party, you are liable.
The company or person that you are contracting to is not responsible, and on that basis their own public liability insurance would not cover any such claim.
So it’s vital for contractor to have their own public liability insurance, not only because your contracts will often require it, but because without insurance you are exposing yourself to massive financial risk.
Public liability insurance for contractors is typically quite cheap, although the cost will depend on your business activities and the size of your business.
For a small contracting business (1-2 people) in the residential building industry, cover is available for most trades from under $500 per year for $5 million cover.
Income Protection Insurance
As contractor or subcontractor you will generally not have access to sick leave, and depending on your business structure and the state you operate in, even workers compensation will not cover you.
This means if you’re unable to work due to injury or illness you’re going to be on your own.
Some companies you might contract to will recognise this risk, and will stipulate that all contractors must hold their own income protection insurance.
Even if your contracts don’t have a requirement for income protection, is still a vitally important form of tradesman insurance.
The cost of income protection insurance can vary greatly depending on a number of factors such as your age, occupation, level of cover required and the options that you choose.
Whilst it is typically more expensive than public liability insurance, it is well worth it for any self-employed contractor.
Contractual Liability Insurance
As a contractor in the building industry, you will generally be entering into contracts with companies larger than your own.
These larger companies generally have plenty of money to spend on lawyers, resulting in contracts designed in a way that shifts responsibility away from them and onto you.
As a contractor trying to win contracts and get money in the door, you might overlook some of these types of clauses in your contracts.
They can be scary though, and what some of these contracts do is pass large responsibilities onto to you that you might not be expecting.
For example you might be undertaking a relatively small part of a much larger project, but the contract has you agreeing to take on responsibility for the entire project whilst you are on site.
You could end up being liable for a huge claim, even if you weren’t at fault.
Your public liability won’t cover such claims, as it only covers you when you are liable due to your own negligence. It doesn’t cover you if you’re being held liable only because of the contract you signed.
What do you do? You can’t stop entering into such contracts, as you need to keep generating work for you and your team.
This is where contractual liability insurance comes in. It is designed to cover you and your business in the event that a claim arises and you are liable due to the contract, and not due to your negligence.
If you’re concerned about any of the wording in the contracts you have entered into, we strongly suggest speaking to your solicitor who will be able to review those contracts for you.
Whilst you might not be able to avoid some of the clauses in these contracts, you can at least protect yourself against them with contractual liability insurance.
Tool Insurance
There is rarely any specific requirement that a contractor holds tool insurance, but it’s certainly a good idea for any tradie.
As a contractor you will generally be using your own tools on site, but the company you are contracting to is not responsible for your gear whilst it’s on their site.
If your gear is stolen on site, that’s your problem, the same as it would be if your tools were stolen from any other location.
Tool insurance can cover your tools for theft and a range of other risks, such as fire damage, or damage caused in a vehicle collision.
Regarding theft, it’s important to know that the tools are only covered if forced entry has been required to access the tools.
So if your tools are stolen from a worksite, but they were not secured within the worksite (in a locked tool chest for example) then you will not be able to claim.
Some insurers offer a policy commonly referred to as “open air” cover, however this is not the standard and the cost is considerably higher.
More Information
Here at Trade Risk we insure thousands of contractors in the building and construction industry.
Whether you need insurance for your electrical contractors licence, or for a big new contract that your carpentry business is taking on, we can assist with the right insurance.
For public liability insurance we can offer instant quotes via our website, or you can speak with our qualified staff if you prefer dealing with a real person.
For all other business insurance types we recommend speaking with one of our account managers. You can call us on 1800 808 800 for a chat, or complete our quote form and one of our account managers will call you.
Having the right business insurance is vital for all contractors and subcontractors, and at Trade Risk we are the experts in the building and construction industry.
