8 Insurance Mistakes Contractors Should Avoid
As a contractor, you work in a dangerous, fast-paced, and often unpredictable environment. On construction sites, countless hazards can put your projects, equipment, and workers at risk.
While you’re focused on getting the job done, don’t overlook the business side of things—especially your insurance. Nearly 40% of small businesses, including those in the construction industry, never reopen after disasters due to inadequate insurance coverage. To help you protect your business, this guide highlights the top insurance mistakes contractors should avoid, why they matter, and how to prevent them.
1. Cutting Corners on Coverage
Don’t skimp on insurance. Having enough—and the right kind—of coverage is essential to protect your business from major financial losses.
To avoid under- or overpaying, start with a risk assessment and talk with an insurance agent about your specific needs. At a minimum, your policy should account for liability, equipment, workers’ compensation, and other exposures.
Here are 10 types of coverage most contractors should consider:
- Commercial general liability
- Professional liability
- Commercial auto
- Contractor equipment coverage
- Coverage for leased or rented equipment
- Inland marine insurance
- Workers’ compensation
- Builder’s risk coverage
- Pollution liability
- Cyber coverage
An agent can help you customize a plan so you get exactly what you need—without paying for unnecessary extras.
2. Ignoring Contractual Obligations
Many contracts specify insurance requirements. While you may already have adequate coverage, some jobs might call for additional protection.
Always review contracts carefully, including the fine print. If you’re unsure about the requirements, seek guidance from legal counsel or an experienced insurance agent.
3. Skipping Workers’ Compensation
In nearly every state, including Massachusetts, contractors are required to carry workers’ compensation insurance. This coverage ensures that if an employee is injured or becomes ill on the job, their medical expenses, lost wages, and related legal costs are covered.
Workers’ compensation applies even if your employees are part-time, seasonal, relatives, non-citizens, or “under the table.” LLCs with employees also need coverage. While subcontractors and independent contractors are generally responsible for their own policies, always confirm that they’re properly insured. Otherwise, you could be held responsible during your next audit.
4. Misclassifying Workers
Improperly classifying employees as independent contractors—or vice versa—can create tax and insurance issues.
Understand the difference between W-2 employees and subcontractors, and make sure your insurance accurately reflects your workforce. When in doubt, ask your agent to review your classifications.
5. Overlooking Policy Details
Insurance policies can be lengthy and full of jargon, but it’s crucial to read them thoroughly. If anything is unclear, ask your agent to explain.
Know exactly what’s covered and what’s excluded before you sign. Otherwise, you could face an expensive surprise later.
6. Underestimating Equipment Value
Contractors often own or rent costly equipment. Whether it’s new or well-used, have it appraised regularly and update your policy to reflect its true value.
If you underestimate equipment value, you may save on premiums now but end up underinsured when it comes time to repair or replace it. Look for policies that offer replacement value coverage—meaning your insurer pays the cost to replace equipment at today’s prices, not its depreciated value.
7. Failing to Review and Update Your Policy
As your business grows and evolves, your insurance needs will change. To stay protected, review your policies annually with your agent.
Keep your agent informed about new services, equipment, or employees so they can recommend the right coverage. This helps prevent both overpaying and being underinsured.
8. Skipping a Contingency Plan
A contingency plan prepares your business for unexpected disruptions, such as severe weather, equipment breakdowns, or financial setbacks.
Your plan should identify potential risks and outline solutions to keep projects on track. Test it through drills or simulations, and train your employees so they know what to do in an emergency. Review and update the plan regularly.
While a strong plan can minimize the number of claims you file, some events are unavoidable—making insurance just as important.
Mistakes in insurance planning can put your contracting business at serious risk. By understanding these pitfalls and working with a knowledgeable agent, you can make sure your coverage is strong enough to protect your business, your employees, and your future.
If you’re a general contractor with insurance questions, C&S is here to help. Speak with one of our agents today.