Since general contractors face unique risks on every project, securing the appropriate insurance coverage is a foundational aspect of running a reputable contracting business. Most contractors need a combination of general liability, workers’ compensation, and other policies to meet legal requirements in most states.
As Mike Holmes — the professional contractor seen on HGTV — put it on his website:
“Any contractor that works on your home should also carry valid insurance, including full Liability and Worker’s Compensation insurance.”
These insurances protect against accidents, injuries, or property damage that can occur on the job.
As a general contractor, read on to learn some must-know information about general contractor insurance requirements and what contractor insurance costs you can expect.
The exact general contractor insurance requirements depend on your location, specialty, and the specific contracts you hold. But there are several core coverages that nearly all contractors should carry.
This is the foundation of contractor insurance. It protects your business if someone outside your company is hurt or their property is damaged as a result of your work. For instance, if a stray piece of debris from your worksite breaks a client’s window, general liability coverage can cover the repair costs. Or if a client trips and falls over an extension cord, it can cover the medical bills.
A typical general liability policy covers bodily injury, property damage, and issues that arise after the work is done. Given its necessity, general liability is usually the first policy contractors obtain when working on various projects.
If you have employees (even just one), workers’ compensation is mandatory in almost every state. This policy covers medical expenses and lost wages in the event that a contractor is injured or becomes ill as a result of their job duties. For a business owner, this means that if an employee falls or slips, workers’ compensation will pay their hospital bills and a portion of lost income while they recover.
In exchange for these benefits, employees can’t generally sue you for the injury. So, workers’ comp not only protects your employees, but it also protects you from costly lawsuits. Remember that even in places like Texas, where it is not strictly required, going without it is very risky.
Contractors typically use trucks, vans, or other vehicles to transport tools and equipment. Therefore, if your business owns any vehicles, commercial auto insurance is a must, as a personal auto policy won’t cover accidents that happen during work operations.
Commercial auto covers liability if you or an employee causes an accident and injures another driver or damages property. It often covers physical damage to your work vehicles as well. For example, if your work truck rear-ends a car on the way to a jobsite, the commercial auto policy would pay for the other car’s repairs and any injury claims.
Also known as Errors & Omissions (E&O) insurance, professional liability covers financial losses arising from design errors or professional advice. It is especially necessary if your business regularly provides consulting services.
Professional liability coverage protects you when a client claims that your expertise or advice caused a financial loss. For instance, if you suggest a particular building material and it later causes problems, the client might claim negligence. While not every contractor needs this, it’s increasingly a common contract requirement on complex projects. This coverage can ensure that an error in judgment doesn’t turn into a career-ending lawsuit.
An umbrella policy provides an extra layer of liability coverage on top of your other policies. Umbrella policies extend general liability, commercial auto, and employer’s liability coverage, but not the workers’ compensation benefits themselves. Umbrella coverage can extend employer’s liability (the lawsuit portion of workers’ comp), but not the statutory workers’ comp benefits. It’s often a nice-to-have option until you need it, then it’s a lifesaver.
Let’s say you face a large lawsuit of a $1.5 million judgment, but your general liability’s limit is only $1 million. An umbrella liability policy steps in to cover the rest, as many general contractors typically purchase a $1 or $2 million umbrella policy, especially if they work on high-value projects. Some clients require contractors to have umbrella insurance to ensure there’s sufficient coverage.
Builder’s risk insurance protects your project during construction, covering structural damage and material loss. It will pay to repair or replace the work in progress and materials on site if a covered peril, such as fire, theft, or vandalism, damages them.
Typically, the contractor or the project owner must purchase the policy for each project, as it’s often required in the contract. It usually covers the structure being built or renovated, as well as the materials and equipment on site, until the project is completed. Without it, you’d have to redo the work out of pocket if a windstorm knocks down a partially built structure.
Finally, as a general contractor who hires subs like electricians or plumbers, you should require them to carry their own insurance and name you as an additional insured. This way, if a subcontractor’s work causes an injury or damage, their insurance will pay, not yours.
Many general contractors include this requirement in their subcontractors’ contracts and request a certificate of insurance as proof of compliance. It protects you from being on the hook for a sub’s mistakes. For instance, if an uninsured subcontractor causes a fire, the claim could fall on the general contractor’s insurance — or worse, on you. By ensuring subs have coverage, you transfer the risk back to them.
One of the first questions you might ask is: “How much does general liability insurance cost for a contractor?” The answer depends on several factors, including your business size, location, trade, and the coverage limits you choose.
For a small- or mid-sized contracting business, general liability premiums typically range from $70 to $100 per month for a policy with a $1 million coverage limit. Most contractors with basic operations and good histories pay over $1,000 per year for liability coverage.
The type of contracting work you do also hugely impacts premiums. For example, electrical contractors are considered a moderate risk and pay an average of $57 monthly for general liability coverage. On the other hand, roofing contractors are considered very high-risk, so their typical monthly premium might be around $267. Other trades, such as plumbing, painting, or carpentry, typically fall somewhere between these two extremes.
In addition to general liability, general contractors can expect to pay, on average, $250 to $300 per month for workers’ compensation insurance, depending on payroll size, trade risk, and claims history. Commercial auto insurance will probably be the most expensive policy you’ll pay, with $215 per month being the national average. Umbrella policies are typically affordable, with $1 million in extra coverage costing only a few hundred dollars annually.
Altogether, a small contracting business could be looking at anywhere from $3,000 to $10,000 per year for a comprehensive insurance package, depending on trade risk, location, and policy limits. You should take this into consideration when planning your contractor pricing strategy.
If coverage lapses, authorities can suspend your license or halt permits. You’ll also face gaps in protection. Always set a calendar reminder for renewal at least 30 days before expiration.
While annual premiums may be substantial, strategic payment plans for customers can offset these expenses. Offering contractor financing is a financial strategy that can enhance cash flow and indirectly help manage overhead costs, such as insurance premiums. This steady funding can help contractors cover labor, materials, and other ongoing expenses with less reliance on credit or reserves.
It’s not enough to simply have insurance. You should also understand what the policies cover and what they don’t. Here’s a concise breakdown of common contractor insurance coverages:
Insurance policies often exclude certain risks, such as professional errors (covered by professional liability insurance), pollution, intentional misconduct, or defective work itself. Coverage for tools and equipment is typically provided through separate policies. Always read your policies or review them with your insurance agent to know the limits.
Finding the best general liability insurance for contractors boils down to selecting a reputable insurance company that understands construction risks and offers the necessary coverage at a fair price. These are some reputable insurance companies to consider for some of the most affordable general contractor insurance:
Other highly rated companies to consider include Travelers, Nationwide, State Farm, and Chubb.
In conclusion, obtaining the right coverage is one of the first steps to establishing a successful contracting business. Once your insurance program is in place, benchmark your margins against industry data on how much contractors make. As the old saying goes, hope for the best and plan for the worst. Insurance is how contractors plan for the worst.
Licensed general contractors in Florida must carry a minimum $300,000 in bodily injury and $50,000 in property damage. Contractors with one or more employees must carry workers’ compensation. Only up to three corporate officers or LLC members, each owning at least 10%, can apply for an exemption; sole proprietors and partners cannot.
Texas doesn’t have a statewide requirement for general contractors to carry liability insurance. But the majority of Texas contractors do carry insurance of at least $1 million per occurrence due to contract requirements and risk management.
Washington requires a $30,000 surety bond for general contractors ($15,000 for specialty) and liability insurance of at least $200,000 public liability and $50,000 property damage (or $250,000 CSL). Contractors with employees must also carry workers’ compensation insurance. This ensures both public protection and compliance with worker safety regulations.
In California, liability insurance requirements depend on the business structure.
Licensed general contractors in California operating as LLCs must carry a minimum of $1 million in liability coverage if they have up to five personnel, with the required limit increasing by $100,000 per additional employee, up to a maximum of $5 million. The state does not legally require sole proprietors and corporations to carry liability insurance, but many clients and contracts mandate it in practice.
All California contractors with employees must carry workers’ compensation insurance, regardless of whether they are sole proprietors, corporations, partnerships, or LLCs.
Most insurers aim to process straightforward liability claims within 30 to 60 days, though timelines can vary widely depending on the complexity of the claim. More complex cases may take several months, depending on investigations and documentation.
