HVAC Insurance: What Every HVAC Business Owner Needs to Know

Brittany ParisJune 24th, 2020
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It takes a vast amount of work and oversight to grow a successful HVAC company, between understanding local contractor licensing laws to securing enough HVAC business insurance  coverage to mitigate risk and protect your investment. 

Whether you’re building an HVAC company from the ground up, expanding your services or searching for additional coverage, it’s fundamental as a business owner to find the right HVAC insurance policy to adequately cover any major losses. 

HVAC contractor insurance provides other benefits, too, as it gives customers an assurance your company is financially backed in case of an unforeseen event, such as an accident, property damage, or injuries related to the job.  

How much HVAC business insurance your company needs depends on a variety of factors, but an overview of what HVAC insurance policies cover include:

  • Accidental injuries

  • Property damage

  • Employee wages after a work-related injury

  • Vehicles and equipment

  • Unintentional faulty workmanship

  • Legal fees

Don’t let a workplace accident, theft, or a lawsuit from a disgruntled customer suck all of the air out of your business and leave you broke. In this comprehensive guide to HVAC insurance, we’ll help you figure out what types of insurance you should consider as an HVAC contractor, how to budget for the average small business insurance cost, and provide additional tips to protect your HVAC company from a financial catastrophe.

What Types of HVAC Insurance Do You Need?

It’s important to understand the different types of HVAC contractors insurance available, so you can determine which policies best suit your company’s specialized needs.

Popular HVAC business insurance policies include:

  • Commercial general liability insurance

  • Workers’ compensation

  • Commercial auto insurance

  • Business owner’s policy

  • Surety bonds

  • Umbrella insurance policy

  • Equipment and inland marine coverage 

Commercial General Liability Insurance

HVAC liability insurance covers accidental injuries and property damage related to your work as an HVAC contractor. Many places require HVAC coverage verification for general liability insurance to obtain an HVAC contractor license, or when signing a commercial lease or customer contract. 

Examples of what HVAC general liability insurance typically covers:

  • Repair costs for property damage to a customer’s home or belongings

  • Physical injuries sustained on a job site

  • HVAC installation problems

  • Moisture damage caused by your HVAC work 

It’s imperative you carry HVAC liability insurance, because it protects the business if your company’s work causes property damage or bodily injury to customers. 

Workers’ Compensation Insurance

A workers’ compensation insurance policy pays the medical bills and payroll costs of employees injured while working for your HVAC service company. Many states require workers’ compensation insurance for HVAC businesses with employees.

Workers’ comp policies compensate for medical care and lost wages if an office employee or HVAC technician gets hurt on the job, and usually protects employers from lawsuits related to jobsite injuries. 

More than 13,000 nonfatal work injuries and illnesses were reported for HVAC contractors and plumbers working in the U.S. private sector in 2018, according to the most recent statistics from the Bureau of Labor Statistics. Overall, the construction industry has the highest rate of fatal work injuries of any industry sector, according to recent data from the U.S. agency. 

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Each state differs on the workers’ compensation requirements for employers or companies who hire subcontractors. To find out what’s required in the areas your HVAC company services, visit the state’s workers’ compensation commission website.

Commercial Auto Insurance

As an HVAC service company, it’s important to invest in commercial auto insurance to cover the company vehicles you and your technicians drive from one job to the next. If one of your employees causes a traffic accident, it could result in costly property damage and medical bills, especially if the collision injures another motorist.

Most states require any registered vehicle to carry liability insurance. Just as you protect your personal vehicles with insurance, it’s critical you also cover your HVAC company’s fleet of trucks or vans with commercial auto insurance to protect your vehicles (and bank account), in case you or your employees are ever involved in an accident.  

Commercial auto insurance for HVAC pays for:

  • Collision damage to another driver’s vehicle

  • Property damage caused in an accident

  • Medical bills arising from a third-party injury

  • Theft or vandalism to company vehicles

Commercial Property Insurance

Property insurance for HVAC companies protects your investment in business property, including office space, tools, equipment and inventory stored on the company’s leased or owned property. A commercial property insurance policy would cover the value of any business equipment and buildings damaged or destroyed by a fire or similar disaster, or stolen off the property.

Other HVAC Business Insurance Policies for Companies to Consider

In addition to the main HVAC contractor insurance policies described above, business owners should also consider these additional types of HVAC insurance coverage:

Business Owner’s Policy (BOP)

A standard business owner’s policy, or BOP, provides small- to medium-sized companies an affordable and flexible HVAC insurance bundle option as they grow the business. 

To be eligible for most business owner’s policies, your HVAC company must:

  • Employee fewer than 100 people

  • Make less than $1 million in annual revenue

Often offered at a discounted rate compared to standalone policies, a BOP includes a combination of general liability insurance to cover personal injury or damage caused while on the job and commercial property insurance, which covers repairs and equipment losses at the company’s office and other property used for the HVAC business.

Some BOPs also include business interruption coverage to provide business owners with financial assistance if forced to close for repairs after a covered disaster like storm damage. It can cover the extra expense of operating out of a temporary location, too. 

» Related resource: COVID-19 Insurance Coverage Resource

It’s important to note the average liability insurance cost for small business varies widely based on the amount of risk your profession faces on the job, meaning contractors require more general liability coverage than someone providing professional services in an office. 

The general liability insurance policy included in a BOP likely won’t provide enough HVAC insurance coverage for all of your company’s commercial liability, so it’s wise for HVAC business owners to invest in additional liability insurance protection—just in case an incident exceeds the limits of your primary HVAC insurance policy. 

BOPs do not cover professional liability, auto insurance, workers’ compensation coverage, or health and disability insurance claims. You’ll need to purchase separate insurance policies to cover those HVAC contractor insurance needs. 

HVAC business owners can often customize what’s included in a business owner’s insurance policy to protect against unique vulnerabilities. Depending on the insurance provider you choose, you can add HVAC insurance coverage to a BOP for costly situations such as:

  • Data breaches

  • Equipment breakdown 

  • Employment practices liability

  • Loss of income 

Cover Additional Liability Risks with These HVAC Insurance Programs

Mistakes happen, even by experienced service professionals. To fill in gaps that your commercial HVAC general liability insurance policy doesn’t cover, business owners should consider adding professional liability insurance or an errors & omissions policy to cover any unintentional mistakes or mishaps related to a job. 

Professional liability insurance provides financial protection, covering legal fees and judgments, if a dissatisfied customer sues your HVAC company for any of the following: 

  • Work errors and errors in design

  • Incomplete work or failure to fulfill the job contract

  • Misrepresentation of services or skills 

  • Violation of good faith and fair dealing

  • Inaccurate advice given to customers

  • Alleged or actual negligence

Professional liability policies limit coverage to company owners and employees, so they don’t cover work performed by subcontractors. They also don’t cover non-financial losses or losses caused by intentional or dishonest acts, such as purposely using sub-par materials.

Errors & omissions insurance pays for any damages related to your work or the job site after your HVAC company finishes the work and which results from your negligence, errors, or omissions. It does not cover work that’s in progress or damages already covered under your general liability policy.

If found liable for mistakes that cause damage after a job’s completed, an errors & omissions insurance policy covers the cost to repair or redo the faulty work, as well as any legal defense against those claims.  

E&O policies used to primarily serve larger general contractors or big businesses; however, with consumers demanding more than ever from home service companies and a rise in civil lawsuits, insurance providers started introducing more affordable E&O policies to protect home service contractors. 

Umbrella Liability Insurance

If a civil suit judgment or liability incident exceeds your HVAC liability insurance limits, an umbrella liability insurance policy gives you assurance your HVAC company can cover the additional costs. 

Umbrella liability insurance policy essentially serves as a backup policy that provides extra coverage and protection for your HVAC company. An umbrella liability policy typically provides extra coverage for general liability insurance, commercial auto liability insurance and employers’ liability insurance, which often includes workers’ compensation. 

Keep in mind, umbrella liability policies do not cover claims related to commercial property insurance or professional liability insurance.

Equipment Insurance, HVAC Inland Marine Coverage

Your HVAC tools and equipment play an essential role in your heating and air conditioning work, so it’s important to protect those assets from theft or accidental damage. 

Commercial insurance for A/C units and other equipment can be added to an HVAC liability insurance or business owner’s policy. It generally covers small tools, mobile equipment, and any equipment less than five years old—but does not cover damage from general wear. 

If your HVAC business routinely ships or transports high-value products and equipment over long distances, also consider investing in inland marine insurance. An installation floater is a type of inland marine insurance that covers expensive heating and A/C units, ventilation system components, and other HVAC materials while they’re en route to the job site and until installation. 

» Related: HVAC Van Organization Tips & Strategies

Surety Bonds to Protect Customers

Not technically insurance for your HVAC company, a surety bond provides a level of insurance for your customers that the HVAC work your company performs will meet professional construction standards and follow all local or state regulations. A surety bond differs from HVAC insurance, because you must repay the surety company for successful customer claims.

Many municipalities and states require a minimal surety bond for HVAC contractors seeking a contractor license or permits. Bonds guarantee your work, so homeowners and commercial customers can rest assured you’ll do the job right—or they’ll get reimbursed through the bonding company for illegal, shoddy or incomplete work. 

HVAC Insurance Requirements for Licensed Contractors

Just like surety bonds, HVAC licensing requirements vary by state and local municipality—although the majority of places require some level of licensing or registration for heating, air and ventilation contractors. 

In most instances, you must provide proof of general liability insurance to obtain an HVAC contractor license. Some stricter states and local governments have additional HVAC insurance and bond requirements you must meet before being granted a license or permit to perform work in the area. 

For example, to get licensed as an HVAC contractor in the state of New Jersey, you must hold $500,000 in general liability insurance and post a $3,000 bond. In Kansas, HVAC contractor licensing is handled at the local level, with counties and cities determining insurance and bond requirements for contractors licensed in their area.

It’s important to check the regulations for your service areas to ensure your HVAC business obtains all of the necessary licenses, permits and HVAC insurance required. Otherwise, you risk pricey fines, legal action, and your job getting shut down.

HVAC Insurance Cost

Annual HVAC insurance costs total anywhere from $350 for small startup service companies to more than $10,000 for large HVAC businesses. What is the average small business insurance cost? Well, it varies widely because no two companies operate exactly the same. 

Your HVAC insurance cost depends on: 

  • Location and size of service area

  • Company revenue 

  • Number of employees

  • Technical and business experience 

  • Types of HVAC insurance policies you invest in

Because you work on customers’ property in a high-risk construction profession, your HVAC liability insurance needs and average small business insurance cost will be higher than other industries. If you primarily work on high-end homes, commercial properties, or install large HVAC systems, you’ll need more coverage than an HVAC contractor working on average residential properties and providing mostly repair and maintenance services.

The most popular HVAC liability insurance policy for small businesses provides up to $1 million to cover a single claim and up to $2 million total during the policy lifetime, which is typically one year, and costs annually between $400 and $1,500. For HVAC installers, the average annual premium for general liability insurance is $870.

Workers’ compensation costs depend on the number of employees and type of work your HVAC company performs. Rates are based on every $100 of your business payroll, but vary by state and your company’s claim history.

Commercial property insurance for HVAC companies typically costs $500 to $2,000 per year, while equipment insurance starts around $500 annually with a $500 deductible. Commercial auto insurance for HVAC businesses ranges between $1,000 and $4,000—depending on the size of your fleet. To gain an extra $1 million per claim through an umbrella insurance policy will cost between $500 and $1,000 a year.

Your HVAC company can save significantly by bundling some of your HVAC insurance coverage into one plan. For instance, combining general liability with commercial property insurance through a business owner’s policy can drop the total cost to $500—versus paying $850 to $1,500 or more for two separate policies.

How HVAC Software Protects Your Business Investment

In addition to having the right amount of HVAC contractors insurance, proper record-keeping plays an essential role in protecting your business, from call tracking and fleet management to inventory of materials and tools.

ServiceTitan HVAC Software connects your office with your technicians working in the field, allowing for real-time updates and detailed business reporting to both streamline your company’s efficiency and bolster your bookkeeping processes. 

Track every truck, technician, job, payment, and customer service interaction with HVAC field reporting software for easy, cloud-based access to the important details you’ll need to know if your service company files HVAC insurance claims. 

Find the Right HVAC Insurance Policy and Insurance Provider

Whether you’re just starting out and need basic, minimum commercial HVAC insurance coverage, or you’re following your company’s growth plan and need additional levels of protection, it’s important to find the right policy and insurance provider.

As with any financial commitment, do your research and shop around. Before you choose an insurance provider, get referrals and check reviews or complaints.

To determine if an insurance provider is right for you:

  • Find out if they have experience with HVAC contractors insurance 

  • Check the financial strength of the provider’s insurance companies

  • Shop around to compare prices and benefits

A qualified insurance broker will conduct an analysis to help you determine what HVAC insurance policy you need and the proper amount of coverage to financially protect your company.

While it may seem like an annoying business expense, comprehensive HVAC contractor insurance coverage provides a valuable investment that can save your HVAC business an enormous amount of money in the long-run.

ServiceTitan is a comprehensive HVAC business software solution built specifically to help service companies streamline their operations, boost revenue, and achieve growth. Our award-winning, cloud-based platform is trusted by more than 100,000+ contractors across the country.

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