Before business owners in New Jersey can understand why they need to have contract insurance, they must first know what exactly a business contract entails A business contract is a legal agreement between two parties which is used when there are services rendered for a fee or specific duties that are required to be done within a certain time. This helps to explain NJ business contracts insurance and why it is needed.
The Elements of a Business Contract
There are several elements that are required to be in a business contract in order for it to be legally binding. These elements include the following.
The parties of the contract are the individuals or business entities who are part of the agreement. An example of this could be when a freelance graphic designer is hired as an independent contractor. There would most likely be a contract between the two parties that spells out exactly what services are shared among parties.
This is the part of the contract that explains what is expected from each of the parties. This section could also spell out what expenses will be paid to the person providing the service. To continue with the freelance graphic designer example, the consideration received through the process of an individual hiring the designer is the finished project. The designer’s consideration would be the compensation they received upon the completion of the project.
Terms and Conditions
This section explains the specific rights and obligations of each of the parties. Depending on the type of business arrangement you are putting together, the terms and conditions can range from the payment amount to the duration of the agreement and everything in between. This is also where you will most likely find a section about what happens if a certain party breaks the contract.
Both parties must be mentally competent when they sign the agreement. If either party is found to be incompetent, such as under the influence of drugs or alcohol, the contract can be deemed invalid.
Why You Need Contract Insurance
There is one specific reason why most individuals need contract insurance. They want to protect their interests in the event that they are no longer able to hold up their end of the deal. So why should you get contract insurance? There are some clients who want the peace of mind of having particular insurance requirements pre-written into the contract. If that same client feels that your company has failed to provide the services or goods that were specified in the contract, then he may file a claim. If the accusations are proven to be false, it is in your best interest to be insured.
Types of Contract Insurance
There are actually two types of contract insurance that are used most often: professional liability and general liability.
Professional Liability Insurance
Professional liability insurance is also known as errors and omissions insurance. It will protect not only you but also your business from claims of negligence or failure to complete professional tasks. Keep in mind that contract insurance is not usually included in a personal liability insurance so you should contact your insurance broker to make sure you are covered.
General Liability Insurance
The second type of contract insurance, general liability, protects your business from any claims for bodily harm, associated medical costs and damage caused to another person’s property. The majority of these types of contracts require at least $1 million of coverage.
Why Does a Client Want Contract Insurance?
Contract insurance gives both parties peace of mind. As previously stated, when there are insurance requirements already written into the contract it the client can relax knowing that the service you are offering is covered.
Documents You Might Need
There are a variety of forms and documents that you might need when it comes to your contract insurance including:
- ISO Form – the industry standard policy form that is used by almost all insurance companies.
- Waiver of Subscription – this makes it so that the insurer who has paid a loss from seeking restitution from another party who could be partially responsible for the loss.
- Certificate of Insurance – this is what is used to prove to clients that you are insured.
- Accord Insurance Certificate – a widely accepted form of insurance that is often issued by an agent or broker.
Broad Form Contractual Liability – this type of coverage is available on a blanket basis because of the comprehensive endorsement they have received.
- Primary and Non-Contributory Clause – this is the first response to a claim.
When it comes to contract insurance, you should know how well you are, or are not, covered. This includes familiarizing yourself with the day-to-day terms and conditions that are present in your contract to the level of coverage during daily life.
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