As a contractor in California, you might be wondering whether you need to have insurance. The short answer is yes – you do. While it may seem like an unnecessary expense, insurance can help protect you against things that are outside of your control, especially on dangerous job sites.
The California Contractors State License Board (CSLB) requires all licensed contractors to carry certain types of insurance coverage. You cannot get your contractor license in California without proof of several types of insurance.
In this article, we’ll explore the different types of insurance coverage that contractors in California are required to have, as well as some optional coverages that you may want to consider.
Why Do Contractors Need Insurance?
Before we dive into the types of insurance coverage that contractors need to have in California, let’s talk about why insurance is important for contractors in the first place. The construction industry is inherently risky, with many potential hazards on any given job site.
Accidents can and do happen, and without proper insurance coverage, contractors could be on the hook for expensive medical bills, property damage, and legal fees.
Insurance provides contractors with protection against these risks. In the event that something goes wrong on a job site, insurance can help cover the costs of damages and legal fees, potentially saving contractors thousands of dollars.
Types of Insurance Coverage Required for Contractors in California
The CSLB requires all licensed contractors in California to carry two types of insurance coverage (and one bond):
1. Workers’ Compensation Insurance
Workers’ Compensation Insurance provides coverage for any employee injuries or illnesses that occur on the job. This includes medical expenses, lost wages, and rehabilitation costs.
In California, all employers are required to carry workers’ compensation insurance, regardless of the number of employees they have. This is to protect both you, your business and any potential workers besides yourself.
Generally speaking, you must submit proof of Workers’ Compensation Insurance to obtain a CSLB contractor license. However, there are some exceptions to this rule. You may be able to get your license without having any Workers’ Comp insurance.
Workers Comp Insurance Exemptions
In some cases, you can be exempt from needing Workers’ Compensation Insurance. You have to apply for exemption, of course, but there are a number of ways you can avoid this requirement.
You MUST have Workers’ Compensation Insurance if you hold any of the following classifications:
- You have employees
- You are a C-8 Concrete contractor
- You are a C-20 Warm-Air HVAC contractor
- You are a C-22 Asbestos contractor
- You are a C-39 Roofing contractor
- You are a C-61/D-49 Tree Service contractor
2. Liability Insurance
Liability insurance provides coverage for property damage or bodily injury that occurs as a result of your work as a contractor. If you accidentally damage a client’s property, for example, liability insurance can help cover the costs of repairs. Basically, liability insurance protects you from being legally and financially responsible for accidents.
Likewise, if someone is injured on a job site, liability insurance can help cover their medical bills and any legal fees associated with the incident. It basically protects you from being on the hook or any work-related medical or legal fees.
In California, all licensed contractors are required to carry liability insurance. There are NO EXCEPTIONS to this insurance – if you are performing construction work in California, you must have liability insurance. The minimum amount of coverage required varies depending on your classification, with a minimum of $300,000 required for most classifications.
3. Contractor’s Bond
Although not technically “insurance”, a Contractor’s Bond basically acts as insurance, and is also required by the CSLB in order to receive your contractor license. Unlike Liability and Workers Comp insurance, though, a contractor’s bond protects the consumer.
What is a contractor’s bond? A contractor’s bond is a type of surety bond that is designed to protect clients from financial loss if a contractor fails to complete a project or does not fulfill their contractual obligations.
In other words, it pays the client in the case that you don’t perform the work you agreed to. While it might sound scary, it’s really a safeguard against unscrupulous contractors who might accept payment before disappearing into the sunset with the client’s money. If you’re an honest contractor, you don’t have anything to worry about.
The bond amount varies depending on the type of contractor’s license and the amount of work the contractor does in a year, but the minimum amount you must post to receive your CSLB license is $25,000.
Like the other types of insurance, this is only your coverage amount. The amount you have to pay to be covered for $25,000 is much lower – you can expect to pay around $100 or less for your Contractor’s Bond.
Optional Insurance Coverages for Contractors
While workers’ compensation and liability insurance are the only types of insurance that are required for contractors in California, there are other types of insurance that you may want to consider. These include:
1. Commercial Auto Insurance
If you use a vehicle for business purposes, you may want to consider commercial auto insurance. This type of insurance provides coverage for vehicles that are used for business purposes, such as transporting materials or traveling to job sites.
2. Professional Liability Insurance
Also known as errors and omissions insurance, professional liability insurance provides coverage for mistakes or negligence that occur while providing professional services. If you are a contractor who provides design services, for example, you may want to consider professional liability insurance.
3. Bonding
Bonding provides financial protection in the event that a contractor fails to complete a project or fails to meet the terms of a contract. Bonding is not required for all contractors, but it may be a requirement for certain types of government contracts.
How Much Does Insurance Cost for Contractors in California?
The cost of insurance for contractors in California varies depending on several factors, including the type of insurance coverage, the size of the business, and the location of the business.
According to the National Association of Insurance Commissioners, the average cost of general liability insurance for small businesses in California is $1,284 per year.
The average cost of workers’ compensation insurance for California contractors can vary and depends on the size of your operation and the number of employees you have, but generally speaking, Workers’ Compensation Insurance costs $2.15 per $100 of payroll in California.
The cost of commercial auto insurance can vary widely depending on the type of vehicle, the amount of coverage, and the driving record of the driver, so it’s practically impossible to give an estimate for this insurance.
Contractor’s bond costs vary depending on the bond amount, but typically range from 0.3% to 3% of the bond amount. For example, a $10,000 contractor’s bond may cost between $30 and $300 per year. With the current bond requirement of $25,000, you can expect to spend between $75 and $750 per year on Contractor’s Bonds.
Do I Need Insurance Before I Can Get My Contractor License?
In short, yes. You need to have proof of insurance before you can even apply for your contractor license.
In order to apply for your CSLB license, you need to show proof of insurance and contractor’s bonds. You will not be able to get your contractor license unless you have the necessary paperwork – so if you’re going to get your contractor license in the near future, make sure you get your proofs of insurance in place ahead of time.
Conclusion
In conclusion, all licensed contractors in California are required to carry workers’ compensation and liability insurance, in addition to providing proof of Contractor’s Bonds. All of these types of insurance must be in place before you can apply for your license.
While these are the only types of insurance that are required, contractors may also want to consider optional coverages such as commercial auto insurance, professional liability insurance, and bonding.
Having the right insurance coverage can provide contractors with peace of mind and protection against the many risks associated with the construction industry.
You also absolutely need to be insured to even get your contractor’s license in the first place. So what are you waiting for?
