How Insurance Can Impact Contract Negotiations and Approvals for Contractors

Being a contractor means being trusted to accomplish a job competently and professionally. One of the ways contractors can demonstrate these qualities is by retaining proper insurance; failing to do so can negatively affect contract negotiations. In fact, many prospective clients begin negotiations by asking, “Are you bonded and insured?” If the answer is no, they’ll likely seek another contractor.

What Is Contractors Insurance?

Contractors insurance is a general term that describes coverage designed to financially protect these professionals. It may include numerous forms of insurance, such as general liability coverage, commercial auto coverage, inland marine coverage, builders’ risk coverage and others.

Critically, many forms of contractors insurance are designed to help pay for damage you may cause to a client or their property when working on a project. After all, working inside another person’s home can introduce numerous risks. Having the right insurance can help when an unexpected event occurs, providing peace of mind to both you and your clients.

What Is a Bond?

A bond is related to insurance and may be purchased through a broker, but it is technically unique from insurance. Insurance can follow you no matter where you’re working; it can cover your entire operation. Contrarily, a bond is designed to help insure a specific project and won’t apply to all jobs you take on.

Most contractors look for surety bonds. These bonds can help ensure a client doesn’t lose money if a contractor fails to complete their work. A surety bond involves three parties:

• The obligee is the client.

• The principal is the contractor who purchases the bond.

• The surety is the insurance company.

The contractor (principal) purchases the bond from an insurance company (surety) when securing a contract with a client (obligee). If the contractor fails to meet the contract requirements, then the client may make a claim on the bond from the surety for associated monetary losses.

The Bottom Line

After learning about bonds and insurance, it’s easy to see why so many clients require these assurances before signing a contract. Discuss your operations with Vozza Insurance Agency today, and we’ll help you secure the right contractors insurance and bonds for your circumstances. Contact us to learn more.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.