CSLB Contractor's Law & Business Practice Exam

Which type of insurance policy is best for covering high exposure to risk as a contractor?

1. Property

2. General Liability

3. Builder's Risk

4. Umbrella

The correct answer is: Umbrella

The most suitable insurance policy for a contractor facing high exposure to risk is an umbrella policy. This type of insurance provides an additional layer of liability protection above and beyond the limits of other standard liabilities, such as general liability or employer's liability policies. Umbrella insurance is particularly beneficial for contractors because it can cover large and unforeseen events that exceed the limits of your primary insurance policies. For instance, if a claim arises from an incident that leads to a significant lawsuit, the umbrella policy can help cover the additional costs, protecting the contractor's financial interests and assets. In contrast, other types of insurance, such as property, general liability, and builder's risk, focus on specific areas of risk. Property insurance covers physical assets, general liability insurance protects against claims of bodily injury or property damage caused by the contractor's operations, and builder's risk coverage is specifically for construction projects. While all these policies are important, they do not provide the same extensive coverage for high-level risks as an umbrella policy does. Therefore, for contractors who want comprehensive protection against potentially large liability claims, an umbrella policy is the most effective choice.