Does Your Business Insurance Cover Independent Contractors?
Modern businesses have embraced the concept of outsourcing. Many businesses prefer outsourcing their work to independent contractors instead of hiring, training, and managing new personnel, as it reduces labor and talent sourcing headaches. This allows more experienced professionals to handle unique tasks and projects for your company.
According to data, the independent contractor market is rapidly growing annually, with the number of independent contractors reaching 31.9 million in 2022. However, as the market expands, a new headache crops up for businesses hiring these independent workers. Is business insurance enough to cover them?
Standard business insurance policies typically do not cover independent contractors. Often, if you work with a consistent team of independent contractors, you can add them as additional insured to your policy.
However, independent contractors should also have general and professional liability insurance for their own coverage.
Is Business Insurance Enough for Contractors?
Business insurance protects against a wide range of liabilities and risks a business might face. These include liability claims, property damage, and business interruption. Therefore, this policy typically includes property insurance, general liability insurance, business interruption insurance, and other types of coverage.
Business insurance is typically not extensible to independent contractors. Independent contractors often have to carry their own insurance, with the exact coverage depending on their contract work.
For instance, contractor’s insurance offers protection against risks and liabilities associated with contractor work in the construction industry. It includes coverage for professional liability, commercial general liability, and other types of coverage an independent contractor in the construction industry may need.
On the other hand, a self-employed accountant may require errors and omissions insurance to protect against lawsuits from customers who lost money due to a professional mistake. A musician may need a commercial property insurance cover to recover their instruments and sound equipment in case they’re stolen, destroyed, or damaged.
What About Your Commercial General Liability Insurance?
Independent contractors are often not automatically covered by your business’s commercial general liability insurance policy for most policies. They are considered separate entities from your business. However, with special terms and conditions, you can get coverage for specific actions of independent contractors working on your behalf.
For instance, if an independent contractor causes property damage or bodily harm while working for your business, your commercial general liability insurance policy may cover the resulting lawsuits and claims.
Often, this coverage is limited to specific circumstances, with most policies requiring that the independent contractor is properly licensed and insured to be eligible for coverage under your general liability policy.
Therefore, you must carefully read the terms and conditions of your business insurance policy to establish the coverage and limitations for independent contractors. Some may require you to make an endorsement or add a rider to extend the general liability coverage.
The Benefits and Drawbacks of Adding an Additional Insured
When adding independent contractors to your business insurance policy, you add them as additional insured. This comes with a few drawbacks and advantages. Here are the most important ones to consider.
Your Company Holds the Larger Blame and Responsibility
By adding an independent contractor to your business insurance policy, your company effectively takes the larger responsibility for any property damage or bodily harm caused by the contractor. Therefore, claims and lawsuits are made against your business’s policy.
For most companies, this is not a preferred option. Therefore, they ensure independent contractors are insured and can take full responsibility for property damage and bodily harm. This is why most uninsured independent contractors find securing work in some industries hard.
It’s Attractive for Long-Term Consultants
While adding an independent contractor as an additional insured will put the larger responsibility on your business, doing so for consultants working with your business on a long-term task can be beneficial.
This is the case especially if the work is high-liability, such as touching on sensitive client information, and the consultants cannot acquire the appropriate insurance themselves.
You should inform the consultant that the coverage applies only to work they do for your business and the duration of the relationship or contract.
Who’s Responsible for Adding the Additional Insured?
Business owners and independent contractors with general liability coverage can add an additional insured to their policy. Exactly who bears the responsibility varies across industries and scenarios.
In most cases, independent contractors have insurance obligations that they must fulfill with their work contractors. Some include adding the business as an additional insured to their policy.
You should ask your independent contractor about their insurance obligations and talk to your agent about the cost and benefits of using your coverage or being an additional insured for the specific scenario.
Other Types of Insurance Coverage You May Need to Consider for Independent Contractors
Apart from commercial general liability insurance, you may be required to have additional types of coverage for your independent contractors depending on their insurance state and state laws. Often, you need to consider adding them to your commercial auto insurance and having subcontractors covered by worker’s compensation.
Commercial Auto Insurance
Commercial auto insurance is mandatory in most states for business-owned vehicles. If a contractor drives a vehicle your business owns, you must ensure they’re covered in case of an accident.
If they’re often driving your business vehicle, it may be a good idea to ensure they also have their own coverage and show you a certificate of insurance as proof of coverage.
Often, it’s the responsibility of the independent contractor to have worker’s compensation if they have any employees who work for them. In most states, worker’s compensation is mandatory for all workers working in dangerous occupations, such as construction contractors.
Worker’s compensation covers work-related illness and bodily injury, which health insurance will unlikely cover. It can also help offset wages if one cannot work after the illness or injury.
Not all independent contractors can obtain worker’s insurance. Depending on the type of work they do, subcontractors often have to get coverage from the general contractor.
You should check with your insurance company and state’s worker compensation laws to ensure your employees, business, and contractors are compliant and protected.
Get an Expert to Help You Choose the Right Policy
Many factors must be considered before establishing whether your business can extend its coverage to an independent contractor or is more beneficial if the contractor carries the policy themselves.
Talk to an insurance expert and learn how to protect your independent contractors.