Every construction company knows how vital an extra pair of hands is to their small business. Even the biggest companies with plenty of in-house employees need to outsource certain tasks, because their own workers may not have all the necessary people power.

Enter subcontractors—and subcontractor default insurance.

While using a subcontractor can help make a project a reality even when your team is stretched thin, it also comes with risks. For one thing, using a new subcontractor you haven’t worked with before requires the extra time and cost of onboarding. Plus, there’s always a chance these resources will be lost if your contract defaults.

What happens if your subcontractor goes AWOL? Luckily, there’s protection for that.

What is subcontractor default insurance?

Subcontractor default insurance (sometimes called an SDI policy) offers insurance coverage and protection from financial harm if your contractor violates or terminates your contract by defaulting, or failing to meet obligations. It’s your line of protection against breach of contract by the people you hire.

Here’s how SDI works:

  • A general contractor (GC) will take out a subcontractor default policy. The contractor will negotiate with the insurance company to set the coverage limit and time period. They’ll also set premiums and deductibles.
  • The GC qualifies a number of subcontractors to whom the policy applies (should they default on a contract).
  • If a qualified subcontractor defaults on your contract, the GC can make a claim against the subcontractor default insurance in order to recoup a percentage of their loss, minus deductibles or other fees.

Typically, if a subcontractor defaults on a contract, settling the dispute involves a lengthy and expensive litigation process. Litigation is not guaranteed to recoup the entire loss, such as additional costs due to the delay or postponement of work. This is where SDI can be a great resource.

Who needs subcontractor default insurance?

Any contractor planning on using one or more subs can benefit from subcontractor default insurance.

Subcontractor insurance is typically not legally required for contractors taking on building or development contracts. However, in some cases, the property owner or construction manager may require contractors to carry subcontractor default insurance if they plan on using subcontractors to complete a project.

Why? The benefits a subcontractor default policy doesn’t only protect contractors’ interests but also the owners and construction managers’ interests.

For example, some of the more attractive qualities of an SDI program include:

  • Delays and inefficiencies are mitigated in the event of a default.
  • Encourages contractors to be more careful about which subcontractors they hire, implementing additional screening and requirements.
  • Contractors with SDIs provide their customers with an extra level of security that their project will be completed, and completed on time.

You should consider getting SDI coverage for all these reasons. Even in cases where property owners or managers don’t require their contractors to buy an SDI program, having this form of coverage can give you a business advantage over competitors who don’t.

Of course, subcontractor default is far from the only insurance you need to operate.

What other insurance coverages do contractors need?

Subcontractor default insurance is a savvy way to protect your good business reputation as a general contractor or construction company. But there are other forms of insurance that almost every construction specialist needs, regardless of team size or project type.

In particular, most states legally require contractors and firms in the construction industry to carry two forms of insurance:

  • General liability insurance – General liability insurance covers third-party claims related to bodily harm, property damage, and personal or advertising injury.
  • Workers’ compensation insurance – Workers’ compensation insurance protects a company if an employee incurs an illness or injury while on the job. It can help pay for lost wages due to inability to work, as well as medical fees and ongoing care.

While there may be some state-by-state variations of general liability insurance regulations, if you have at least one employee, workers’ compensation is almost always required (unless you work in Texas). Additionally, given the inherent risks in the construction industry, most clients will only work with you if you can show proof of general liability insurance.

From covering your business equipment, to protection from third-party claims of bodily injury and property damage, to paying for workplace injuries sustained by your staff, you need to have safeguards for your business. Insurance is like insulation that keeps your earnings safe and secure.

At Thimble, we’ve taken the hassle out of insurance. In fact, we’ve built a Contractor Insurance policy specifically for you.

Thimble: Contractor Insurance for the 21st century

Construction is complex enough without having to navigate insurance. With Thimble, you don’t have to.

Every project is different. That’s why we provide affordable, premium coverage and plans tailored to your needs. And we make it as easy as drywall.

With Thimble’s Contractor Insurance, you can choose a plan by the job, month, or year, meaning you only pay for insurance coverage when you need it. It’s insurance that works when you do.

Simply click “Get a Quote”, or download the Thimble app, and answer a few simple questions. From there, you can purchase with one final click and have a Certificate of Insurance (COI) sent directly to your email inbox. You can do all of this in under 60 seconds.

Get a quote

Pretty smart, right? That’s Thimble.

Get the insurance you need to keep building

If you’re a contractor who regularly uses subcontractors, you now know everything you need to know about subcontractor default insurance.

An SDI policy is extremely important to your business, but it is just one part of the bigger insurance picture for responsible and successful contractors. If you purchase it along with general liability insurance and workers’ compensation, not only will you be more attractive to future clients, but your finances and project timelines will also be much safer if one or more subcontractors defaults.

Just like you bring together all the best subs for a big build, combining various policies is like creating an insurance dream team to protect your project and your business.