How Much Does Electrical Contractor Insurance Cost?

Highlights

• General liability insurance for electrical contractors costs, on average, $48 per month.

• The total cost of coverage will depend on the type of insurance purchased, the coverage limits selected, the number of employees on staff, and the business’s location, among other factors.

• Electrical contractors may need to purchase certain forms of business insurance to meet state requirements or satisfy the demands of prospective clients.

• Small-business owners can lower the cost of their electrical contractor insurance by taking advantage of discounts, shopping around for the best rates, and adjusting their coverage options.

Electricians who decide to start their own contracting business often want to protect their new venture. After all, as a business owner, their financial security is tied to the health of their operation. Small-business insurance for contractors helps electrical contractors protect their business from unexpected expenses such as paying to replace stolen equipment, repair damaged vehicles, or settle lawsuits filed by disgruntled customers. How much does electrical contractor insurance cost, though, and is it an expense fledgling business owners will find manageable to work into their budget?

Contractors can expect to pay around $48 per month for general liability insurance, which is the most basic form of coverage available. The exact cost of small-business insurance for electricians will vary depending on the type of coverage selected, the amount of coverage purchased, and several other key factors. It may be worthwhile for business owners to look at all cost factors when shopping for electrician insurance so they can budget accordingly. Handyman insurance costs, for example, may be worth looking into for electricians who provide handyman services in addition to electrical work.

Factors in Calculating Electrical Contractor Insurance Cost

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While the average cost of general liability insurance for electrical contractors is $48 per month, this figure may not reflect the total price of a policy. Electricians may pay more for coverage depending on a variety of cost factors including coverage type, coverage limit, the business’s location, and the policyholder’s claims history. With so many variables to consider, electrical contractors may want to get a small-business insurance quote from several insurance companies to compare costs and coverage options.

Coverage Type

The type of coverage an electrician chooses will be one of the biggest factors that determine their insurance rates. There are many types of insurance for small-business coverage, and electricians may want—or, depending on the circumstances, need—to add multiple coverage options to their policy. For instance, those who have employees on staff may be required by the state to purchase workers’ compensation insurance to help employees pay for medical bills and cover lost wages if they are injured on the job. Some forms of electrical contractor insurance protect the business from theft or damage to property or materials, while others provide liability coverage to protect contractors from legal expenses, medical bills, and other costs they are found legally liable to pay in the event of property damage or injury to a third party.

Electrical contractors may want to look into working with one of the best small-business insurance companies (such as Thimble Insurance and Hiscox) to determine the types of coverage they need for their business. For instance, those with business-owned vehicles may need commercial auto insurance, and electricians with a physical office may want to insure that space with commercial property coverage. Many contractors choose to purchase a policy that provides coverage for both their business property and general liability.

Coverage Amount

An insurance policy is only as good as the amount of coverage it provides. The coverage amount—or coverage limit—refers to the maximum amount of money an insurance company will pay a policyholder on a covered insurance claim. Generally, contractor insurance rates increase as the amount of coverage goes up. With coverage limits being a significant part of small-business insurance costs, contractors may want to carefully calculate how much coverage they need. While having more coverage than necessary will result in higher insurance premiums, too little coverage could leave the business having to pay out of pocket for damages that exceed the policy’s coverage limit.

Discounts

While many factors can make the cost of electrician business insurance go up, discounts work to bring premiums down. Many insurance companies offer a variety of insurance discounts to help small-business owners get the coverage they need at a price they can afford. For instance, electricians may be able to get a lower rate on their insurance by bundling different types of coverage. Electrical contractors often need multiple insurance policies—such as tools and equipment and liability, as well as liability coverage—and insurance companies may offer a discount on rates if a contractor bundles that insurance together. A policyholder may also receive a deal on insurance premiums if they are an existing customer or if they are a member of certain professional organizations or associations. With that in mind, it can be a good idea for contractors to ask about potential discounts when getting an insurance quote.

Geographic Location

The area where a contractor does business can affect their insurance costs. Insurance companies use proprietary risk calculations to assess the likelihood that a policyholder will file a claim, then use that information to help determine insurance rates for that individual. Where a business is located can have an impact on the rates a contractor pays, particularly as it pertains to commercial property insurance. A commercial property policy might cost more in a densely populated area with higher rates of theft and break-ins than in a less-populated region that has lower crime rates. The business’s location may impact the cost of commercial auto coverage for similar reasons. In addition, there are more cars on the road in heavily populated areas, and city dwellers may be more likely to park their vehicle on public streets overnight. More cars on the road mean a higher chance that the insured vehicle could be involved in an accident, and vehicles parked in public spaces may be more at risk for damage or theft than those stored in a garage or parked on private property. As such, insurance companies may charge businesses that operate in cities more for the same coverage.

Number of Employees

The size of an electrical contracting business is another factor that determines insurance rates. The more employees a company has, the more they’ll pay for insurance. Workers’ compensation, in particular, generally costs more for businesses as their headcount grows. In addition, state governments often require small-business owners to purchase workers’ compensation coverage if they have any employees on staff, so electrical contractors may need to buy more insurance than they initially intended if they decide to bring an apprentice or fellow electrician on board. Contractors may want to talk with their insurance company before hiring new workers to learn how adding more employees could affect their insurance costs.

Claims History

Insurance companies will carefully weigh different risk factors when calculating small-business insurance rates, including the policyholder’s claims history. Looking at a contractor’s claims history is a way for insurance companies to determine if the business owner is more or less likely to file a claim in the future. Someone with one or more insurance claims over the past few years will generally be considered a higher risk than someone with none at all.

For example, if a business files multiple claims for stolen equipment in a relatively short period, that might indicate to the insurance company that employees are not taking precautions to properly secure their tools while on the job. An active claims history can increase insurance rates and could even make it more difficult to secure business insurance for electrical contractors in some cases. An insurance company might deny an insurance application entirely if the business has too many recent claims.

Replacement Cost vs. Actual Cash Value Coverage

Electrical contractors who add property insurance to their coverage can choose between two types: replacement cost coverage or actual cash value coverage. Each coverage type refers to how an insurance company calculates the value of covered property (such as tools and equipment) in the event of a covered loss. With actual cash value coverage, the insurance company will reimburse the policyholder for the depreciated value of the covered item (less the policy’s deductible). On the other hand, replacement cost coverage reimburses the contractor for the cost of buying the same item or a similar model at current prices. As such, replacement cost coverage often provides a higher payout on approved claims, but it generally costs more than actual cash value coverage.

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Types of Electrical Contractor Insurance

Electrical contractors can choose from many different types of insurance to suit their needs. Some policies may be useful for all contractors—general liability coverage, for instance—while other policy types might make sense only in certain instances—buying commercial auto coverage to insure business-owned vehicles, for example. Electrical contractors with more insurance policies generally pay more overall for their insurance coverage but may be able to lower their costs through bundling. Business owners may want to reach out to insurance companies and speak directly with an agent to find out exactly what insurance they need as a contractor.

General Liability

A general liability insurance policy is often considered the bare minimum amount of coverage an electrical contractor needs to run their business. Electrician liability insurance protects the business from the cost associated with being found liable for property damage or injuries to a third party. For instance, if a contractor damages a client’s electrical system and it requires extensive and expensive repairs, their liability coverage can help cover those costs. In addition, if a client were to trip on a cord left out by an employee and sustain an injury, general liability insurance for electrical contractors can help pay their medical bills as well as any legal fees or settlements the business might face.

Professional Liability

Another type of small-business liability insurance coverage that may interest electrical contractors is professional liability insurance. This form of coverage—also known as errors and omissions (E&O) insurance—helps protect contractors against claims of unsatisfactory work. If a client deems the contractor’s work to be subpar, they may try to sue the contractor for damages. Unsatisfactory work might include excessive delays, unfinished projects, or electrical wiring that doesn’t meet local codes. While most contractors strive to do a good job for each client, sometimes mistakes happen. Professional liability insurance can help protect a contractor if they inadvertently make a serious mistake or are accused of negligence.

Commercial Property

Commercial property insurance is another type of coverage that electrical contractors may decide to purchase, especially if they operate out of a physical location, such as an office. This type of insurance covers both the office building itself as well as any business-owned equipment stored on-site, such as tools, equipment, or inventory. A commercial property policy covers a business’s property from such perils as fire, smoke, damage, theft, and vandalism.

Electricians who run their business out of their home will need to talk with their homeowners insurance company to find out if there is any business coverage through their homeowners insurance. Even if there is, coverage is typically minimal, so it’s likely a home-based electrician will need to purchase commercial property insurance to ensure their business property is covered.

Business Owner’s Policy (BOP)

A business owner’s policy (BOP) is a convenient coverage option for contractors who want to bundle a few different types of policies and also have a physical location to insure. While exact coverage options may vary depending on the insurance provider, a BOP often offers general liability coverage, personal property coverage, and commercial property insurance in a single policy. This type of insurance can also include business income coverage, which helps contractors recoup losses in the event they are unable to continue doing business after a covered event. A BOP can be an easy alternative to purchasing separate liability and property insurance policies and often offers a price break over the cost of purchasing each coverage option individually.

Workers’ Compensation

Electrical contracting businesses with employees will often need workers’ compensation insurance per state regulations. Even when not required, however, workers’ compensation can be a valuable insurance coverage as it helps cover the cost of medical bills and lost wages if an employee is hurt at work. Contractors and laborers who work on electrical systems are often exposed to severe risks on the job such as being electrocuted by live wires or active circuits. The cost of a workers’ compensation policy is typically tied to the number of employees on staff and the business’s annual payroll. While rates may vary, workers’ compensation insurance is often more expensive than other types of electrical contractor insurance.

Tools and Equipment

Electricians and electrical contractors use a variety of tools in their line of work, including specialized equipment such as multimeters, insulated screwdrivers, and conduit benders. If these tools were to be stolen or damaged beyond repair, the contractor might have to delay work. Without insurance, electrical contractors are on the hook to pay to replace this equipment entirely out of pocket. Although the policyholder would owe a deductible on any claim they file, their insurance would cover the rest of the replacement costs up to their policy limit. Business insurance for tools and equipment can help electrical contractors protect expensive electrical equipment and specialized tools from loss or damage. Tools and equipment coverage may be less expensive than some other types of contractor insurance, such as general liability coverage, but the exact cost will depend on the policy’s coverage limit.

Commercial Auto

Electrical contractors will need a car, van, or truck to transport equipment and get to and from worksites. If they’re driving a business-owned vehicle to the jobsite, commercial auto insurance provides greater protection than a personal auto policy. Depending on what state they operate in, contractors may be required to purchase a commercial auto insurance policy with state-specific liability limits.

Car insurance for electricians can be customized depending on a business’s specific needs, and while only liability coverage is required by law, increasing policy limits and adding coverage to protect the vehicles themselves will increase rates. Driving records can also influence the total cost of commercial auto coverage, and electrical contractors may need to provide their insurance company with the names of all employees permitted to drive business-owned vehicles.

Surety Bonds

Getting an electrician license is a key step in becoming an electrical contractor. Many states require surety bonds as part of the licensing process for electrical contractors. A surety bond is a legal agreement between three parties: the contractor, the client, and the insurance or bond company. Surety bonds work as a guarantee for the client that any electrical work will be completed as promised. Additionally, surety bonds help protect the contractor if they’re unable to complete the job as specified.

Surety bonds work by reimbursing the client any money they’ve paid for the project if the contractor cannot complete the job. In some cases, the cost of a surety bond is relatively inexpensive compared with other types of contractor insurance, but rates can vary quite a bit from one state to another. The contractor’s credit rating can also impact surety bond costs.

Do I need electrical contractor insurance?

Electrical contractors and electricians may need to purchase different types of coverage depending on their circumstances. Electrical contractor insurance requirements vary by local or state laws as well as according to client demands. Although business insurance may not be legally required for an electrical contractor in all cases, having insurance protection for a business is always a good idea.

State Requirements

Many states require electricians to be licensed and insured, and even if state governments lack specific licensing or insurance requirements, local municipalities might have those in place. State governments may require contractors to purchase certain forms of insurance depending on the circumstances of their business. For instance, small businesses with at least one employee often need to carry workers’ compensation insurance. In addition, those with business-owned vehicles may be required by law to purchase commercial auto insurance.

States with insurance requirements for electrical contractors typically require liability coverage at a minimum. The state may also have a minimum coverage requirement for any necessary insurance policies. For example, a state might require contractors to carry a general liability policy with coverage limits of at least $500,000. With that in mind, it may be a good idea for electrical contractors to check with their state’s insurance division as well as trade groups for electricians to learn more about insurance requirements.

Client Requirements

An electrical contractor’s clients might insist on seeing proof of their insurance coverage before agreeing to sign a contract. Many clients want to protect their property when a contractor comes into their home, particularly in case an electrician damages their property while on the job. Some prospective customers may even refuse to hire contractors who don’t carry at least a general liability insurance policy. This is more common with corporate clients, but residential customers may display the same level of scrutiny when it comes to vetting a contractor’s insurance coverage. Electricians may be able to use such demands to their advantage, as having extensive insurance coverage could give them an edge over the competition.

Business Protection

While a contractor may not be legally required to have insurance in all cases, it’s always wise to protect business assets with a comprehensive policy. Electrical contractor insurance helps protect an electrician’s livelihood in the event they suffer a covered loss that might otherwise put the business’s future in jeopardy. As such, commercial electrician insurance can provide peace of mind for business owners who worry about worst-case scenarios such as being sued by an unhappy client, losing their office space to a fire, or having their sole mode of transportation and professional equipment stolen.

Contractors can work with their insurance company to find the right type and amount of coverage for their business. Many insurance companies specialize in small-business insurance and know how to work with contractors to find the right coverage at an affordable price.

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How to Save Money on Electrical Contractor Insurance

Minimizing business expenses is a top goal for many business owners, including electrical contractors. The good news is there are many ways for contractors to get the coverage they need while staying on budget. A few ways for electricians to save money on electrical contractor insurance include:

• Maintaining a safe work environment to cut down on insurance claims, which can raise rates;

• Purchasing only the insurance coverage required to protect the business, which can cut down on unnecessary policies that can inflate prices;

• Raising the deductible and lowering the coverage amount, which can both help to lower insurance premiums;

• Asking about cost-saving opportunities, such as bundling or loyalty discounts, which can reduce rates; and

• Getting quotes from multiple insurance providers to find the right coverage options at the best price.

Questions to Ask About Electrical Contractor Insurance

Between comparing coverage options and checking policy rates, shopping for electrical contractor insurance can be overwhelming. For this reason, small-business owners will want to ask insurance companies or insurance agents a number of questions about their coverage options before deciding on a policy. Some of the questions an electrical contractor can ask include:

• What types of losses or perils are covered by the different policy options available?

• Do I need a separate commercial auto policy if I use my personal vehicle?

• Do I need a commercial property policy if I work out of my home, or will my homeowners insurance policy cover my business too?

• What happens to my workers’ compensation policy if I hire more employees or need to let some of them go?

• How often can I make changes to my electrical contractor insurance policies?

• Are there any discounts I can apply to my policy to lower my insurance costs?

FAQs

Navigating insurance requirements can be daunting for those starting an electrical business and who have no prior experience running their own small business. Insurance for electrical contractors can range from liability coverage and workers’ compensation protection to property coverage for business-owned vehicles and tools. Contractors can also customize their policies to meet their specific needs by adjusting deductible amounts, coverage limits, and policy endorsements. All of these factors can affect how much an electrical contractor will pay for coverage. Contractors may want to contact insurance companies for quotes to get the most accurate idea of insurance costs. Before doing so, it may be worthwhile for them to review some of the most common questions electricians have about small-business insurance so they can make a more informed choice.

Q. What information do I need to provide to get a quote on general liability coverage for electrical contractor insurance?

Each insurance company may have different requirements for contractor insurance applications. However, most insurance applications will ask for information about the business such as the number of employees on staff, its location, the desired coverage amount, and its annual revenue. Some providers can offer insurance quotes within minutes, while other providers may take a couple of business days to provide a quote.

Q. If I cancel my electrical contractor insurance early can I get my money back?

If an electrical contractor cancels their business insurance early, they may not get money back for premiums they already paid. The insurance company provided coverage in exchange for those premiums, even if the contractor didn’t make a claim. However, contractors may receive a partial refund if they have paid an annual premium and cancel midway through the policy period. It’s worth noting that the contractor may have to pay the insurance company a cancellation fee to stop coverage before the policy comes up for renewal.