Contractor License Practice Exam

Which statement is true regarding general liability insurance for contractors?

1. It covers employee injuries on-site

2. It protects against third-party claims

3. It is mandatory for all contractors

4. It has no coverage limits

The correct answer is: It protects against third-party claims

The statement that general liability insurance for contractors protects against third-party claims is accurate. This type of insurance is specifically designed to protect contractors from claims made by third parties for bodily injury or property damage that may occur as a result of their work. For example, if a client or member of the public is injured due to an accident directly related to the contractor's operations, general liability insurance would provide coverage for legal fees and any settlements or judgments. Other options, while related to insurance, do not accurately depict the nature of general liability insurance. For instance, coverage for employee injuries on-site is generally provided by workers' compensation insurance, which specifically addresses workplace-related injuries for employees. Regarding the requirement for this insurance, while it can be important for contractors to have it, not all jurisdictions mandate general liability insurance for all types of contractors. Additionally, general liability policies typically contain coverage limits, meaning there is a cap on the amount the insurer will pay for claims, which contrasts with the idea that there are no coverage limits. Thus, the choice that highlights the protection against third-party claims comprehensively captures the primary purpose of general liability insurance for contractors.