- What is an Independent Contractor?
- Common Types of Independent Contractors
- Why Does an Independent Contractor Need General Liability Insurance?
- How Does an Independent Contractor get General Liability Coverage?
- What is an Additional Insured?
- How Much Does General Liability Coverage Cost?
What is an Independent Contractor?
An independent contractor is a person or business who works for another person or entity under a contract. An independent contractor does not have an employee-employer relationship with those they provide services for; it is more like a business to business relationship.
According to the IRS, “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
Common Types of Independent Contractors
Independent contractors exist in every industry, especially in our ever-growing entrepreneurial society. Here are some of the most common types of independent contractors you or your business may likely work with:
- Construction contractors
- Repairmen (i.e., plumbers and electricians)
- Landscapers and yard maintenance companies
- House cleaners
- Childcare workers
- Graphic designers
- Online freelancers
- Rideshare drivers
- Hairstylists, barbers and salon professionals
- Tutors, trainers, and specialty teachers (i.e., math tutors, personal trainers, piano teachers)
Why Does an Independent Contractor Need General Liability Insurance?
Independent contractors can be held liable for damages if something goes awry. Like any business, an independent contractor can be sued for damaging client property, causing bodily harm, and advertising injury. Advertising injuries include libel, slander, copy infringement, and more.
General liability insurance for independent contractors is necessary because:
- It offers legal and financial protection: If sued, general liability insurance helps cover legal fees and damages.
- Some clients require it: Most clients prefer you have general liability insurance, and many will require it. Your clients want the assurance that they will not be held liable for any damages caused by you or your work.
- Sometimes it’s required by law: Some industries are required by law to carry general liability insurance, especially in the construction field. The NC Department of Insurance (NCDOI) helps educate North Carolina businesses about required and recommended business insurance. Your NC insurance agency can also help advise you.
How Does an Independent Contractor get General Liability Coverage?
There are two ways independent contractors can get general liability coverage. The first is to get their own insurance policy. The second is to be an additional insured on their client’s existing insurance policy.
When you get your own insurance policy, you can request a certificate of insurance. This certificate proves to your clients you have proper coverage for the services you offer.
Or, if your client is willing, they may be able to add you to their general liability insurance policy for the duration of the job. This usually comes at a cost to the client, but can be relatively inexpensive.
What is an Additional Insured?
An additional insured refers to any person or entity other than the policyholder who is covered by the insurance policy. The coverage is often limited to a single event, such as the completion of a specific job. In other cases, coverage could also last for the lifetime of the policy.
Coverage for an additional insured party is usually more limited than what is afforded to the policyholder. How much coverage is offered depends on the policy. Typically, an additional insured endorsement includes defense coverage and coverage for certain third-party lawsuits.
Defense coverage helps cover legal defense fees, court fees, and settlement or judgment costs. For third-party lawsuits, the additional insured endorsement helps cover claims of property damage, bodily injury, and advertising injuries.
When to Add (or Be Added As) an Additional Insured
Though an Additional Insured endorsement seems to favor the one endorsed more than the policyholder, it can greatly benefit the policyholder. When it comes to lawsuits, it’s a common strategy to go after anyone and everyone tied to the accident or damage. The additional insured endorsement not only puts one more barrier between you and the injured party but also another layer of financial and legal coverage.
The most common scenario where an additional insured is named:
A client asks their contractor/subcontractor/business owner to be named as an additional insured on their policy for the duration of the project/service.
Whether you are the contractor or the client, an additional insured endorsement can help protect you. Even if you have your own insurance, you can request to be added as an additional insured to another’s policy. By doing so, you can file a claim with their insurance provider to pay for damages and legal fees as opposed to using your own insurance.
How Much Does General Liability Insurance Cost?
How much should you expect to pay for general liability insurance? Though it’s never a satisfying answer, it depends. Different types of businesses have different risks. The more risk involved, the greater the premium. However, most small businesses are pleasantly surprised at the affordability of general liability insurance.
In general, most carriers charge a minimum premium for all businesses that range between $200 and $500 annually. Considering the standard policy provides $1,000,000 of coverage, it’s a lot of bang for your buck. But, of course, huge companies or those with an inordinate amount of risk can pay premiums in the millions. Thankfully, most insurance providers offer a free general liability insurance quote, so you know exactly how much it will cost before signing on any dotted line.
North Carolina General Liability Insurance Requirements
Though North Carolina general liability insurance is only required in some cases, it is always recommended. It covers common risks that companies and independent contractors face, regardless of the size of their business. Independent contractors are at just as much risk as large companies for lawsuits.
Without proper coverage, independent contractors could find themselves knee deep in legal matters that can be financially devastating. Every independent contractor should at least consult a North Carolina insurance agency to weigh all of their options.