Top Insurance Mistakes Independent Contractors Make And How to Avoid Them

Independent contractors take pride in their skills, independence, and work ethic. Whether in construction, electrical work, plumbing, or other trades, they often wear many hats: technician, business owner, and financial planner. But when it comes to insurance, too many self-employed professionals overlook critical areas that leave them vulnerable to loss.

Here are six common insurance mistakes independent contractors make, and how to avoid them.

Skipping General Liability Insurance

Many contractors assume that if they work carefully, they won’t need liability coverage. That’s a costly assumption. Accidents can happen on any job site, and without general liability insurance, contractors could face out-of-pocket expenses for property damage or third-party injuries.

To avoid this mistake, contractors should carry adequate general liability coverage tailored to the nature and scale of their services. This protects not only their business but also their personal assets in the event of a lawsuit or claim.

Failing to Insure Tools and Equipment

Tools and equipment represent a significant investment for most independent contractors. However, many rely on personal homeowners’ or auto policies to cover theft or damage, only to find out those policies don’t apply.

Contractors should secure inland marine insurance or a contractor’s equipment policy to protect portable tools and machinery. Without it, the loss of essential gear can stall projects and eat into profits.

Not Carrying Workers’ Compensation for Subcontractors or Helpers

Even solo contractors often hire occasional help. Whether it’s a laborer for a few days or a regular subcontractor, not having workers’ compensation coverage could leave the contractor responsible for medical bills or legal fees if someone gets hurt on the job.

To avoid this, contractors must clarify whether the people they hire qualify as employees or independent workers, and carry workers’ comp accordingly. Consulting with a financial advisor can help ensure compliance and protection.

Relying Solely on Personal Auto Insurance

Using a personal vehicle for business may seem convenient, but personal auto policies usually exclude coverage for commercial use. If a contractor gets into an accident while driving to a job site or transporting materials, the insurer may deny the claim.

Contractors should talk to their agent about a commercial auto policy or, at minimum, a business-use endorsement. This ensures vehicles and the business itself are protected in the event of an accident.

Overlooking Disability and Income Protection

In the skilled trades, one injury can bring work and income to a halt. Yet many contractors skip disability insurance, believing it’s unnecessary or too expensive. Unfortunately, a few weeks without income can seriously derail financial stability.

Contractors should consider short-term and long-term disability insurance as part of their risk management strategy. These policies can replace a portion of income if injury or illness prevents them from working, helping cover both business and personal expenses.

Ignoring the Importance of Umbrella Coverage

Many independent contractors carry basic insurance policies, but those policies often have limits. In the case of a serious claim or lawsuit, coverage may run out quickly, leaving the contractor personally liable for the remainder.

Umbrella insurance provides an additional layer of liability protection above and beyond existing policies. It’s relatively affordable and offers peace of mind in high-risk industries where large claims are possible.

At Central Financial Group - Corporate, we help independent contractors find the right insurance solutions to match their profession, budget, and risk level. Contact us today to make sure you’re properly covered where it matters most.