Contractor Insurance Guide for 2024 (2024)

Contractor insurance can protect your small business from going under if you cause property damage, a piece of equipment gets damaged, or one of your employees gets hurt while working on a project. Your state may require you to keep contractor insurance to maintain your license, or a company looking to hire you may include it as a hiring requirement.

Most contractors will need several types of insurance to protect against various risks threatening your small business. Luckily, they can usually be bundled together with the same insurance company and you may even get a discount. Here’s how contractor insurance works and where you can get it.

How does contractor insurance work?

Contractor insurance is usually an insurance policy package with several types of coverage. These policies can protect small-business owners from the full impact of financial losses that can occur if someone files a claim or lawsuit.

The most common types of small-business insurance contractors purchase are general liability insurance and inland marine coverage. Different factors like your business size, state regulations, and your industry will determine if you need more than a couple of policies to protect your business.

Contractors insurance can cover scenarios like:

  • Someone steals your tools from your work truck.
  • A client files a lawsuit against you for shoddy workmanship.
  • While working in the attic, one of your employees accidentally damages a client’s home and belongings after they misstep and fall through the ceiling.

What does contractors insurance cover?

What contractors insurance covers depends on the type of policy you purchase. Here are the different types of commercial insurance and what each policy covers to help you determine your specific coverage needs.

General liability insurance

Contractor liability insurance covers third-party property damage, bodily injury, and other harm that may be caused while performing work for hire.

\For example, you’re working a job and need to get a tool from your truck. You don’t realize the client is behind a door, and when you open it, you hit them with the door, breaking their nose, and damaging some heirloom china they had in their hand. They sue you for medical expenses, property damage, and pain and suffering.

Whether you’re an independent contractor or a subcontractor, general contractor insurance can cover your legal fees and settlement costs.

Inland marine insurance

The inland marine policy has nothing to do with water or boating. It covers repair or replacement of your business personal property, like tools or equipment, if they get damaged, lost, or stolen. It can also cover your employees' tools and any equipment you borrow.

Let’s say you’re a subcontractor whose general contractor stores your tools at the job site. The storage location is broken into, and the items you’re holding there are stolen. The inland marine policy would cover the cost of replacing your stolen equipment.

Business owners policy (BOP)

The business owner’s policy combines general liability coverage and commercial property insurance in one policy. If you need both policy types, you may get a discount by purchasing a BOP instead of each policy individually.

Not all contracting small businesses will qualify for BOP bundles. Insurers typically only offer them to low-risk contractors, so if you’re in a high-risk construction industry, for example, you might not qualify.

Commercial property insurance

Commercial property insurance covers your business equipment, tools and commercial buildings if they are damaged in covered events, such as weather, fire, and similar hazards.

If a fire breaks out or a windstorm takes the roof off your commercial building, damaging it and some of your inventory, commercial property coverage will pay to repair the wind damage and replace damaged inventory. It can also cover operating expenses and lost income while repairs are being made.

Commercial auto insurance

A commercial auto policy will cover your work vehicles if they’re involved in an accident. It can pay for medical costs, legal costs, and property damage. Almost all states require commercial car insurance for business-owned vehicles.

Consider hired and non-owned auto insurance if you use a personal, leased or rental vehicle in your business.

Workers’ compensation insurance

If you have employees, you should have workers’ compensation coverage. This policy will cover medical bills and lost wages for work-related injuries and illnesses.

Most workers’ comp policies also include employer’s liability insurance, which can cover lawsuit expenses if a worker sues you because of work-related accidents or sickness.

Professional liability insurance

Also called errors and omissions, or E&O insurance, professional liability insurance can cover mistakes your business makes while performing professional services, like:

  • Breach of contract.
  • Missing a deadline.
  • Professional negligence while performing a hired service.

For instance, your construction company accepts a bid for a project with a firm deadline. You make a scheduling error, delaying essential materials, and miss the deadline. Your E&O policy can cover legal fees and settlement costs if the client sues.

Builders risk insurance

Also called course of construction insurance, this policy covers buildings under construction against damage from things like fire, theft, and vandalism. This includes brand-new builds and existing buildings going through renovations.

If you’re working on a large construction project and someone steals some of the building materials or a fire damages the building and construction materials, a builder risk policy could pay for the damage.

Commercial umbrella insurance

A commercial umbrella policy can increase liability limits if there’s a claim against your commercial auto, employer’s liability, or general liability policies.

Suppose you reach your limits in one or more of the underlying policies. In that case, the umbrella coverage will automatically kick in, providing more liability coverage up to the policy limit.

Surety bonds

If you can’t fulfill your agreement or contract terms after accepting a project, a surety bond will reimburse the customer to make them whole. Surety bonds are typically a per-project policy in the total project amount.

If you accept a $20,000 project but can only complete half, the surety bond can cover the other half, payable to the client.

How much does contractor insurance cost?

Contractors insurance costs will vary by several factors, including:

  • Your business location.
  • The number of employees you have.
  • The type of contracting business you have.
  • The insurance company you choose.
  • The types of coverage, limits and deductibles.

Keep in mind, your contracting profession is the most significant factor affecting your business insurance premium. Roofers, for example, pay six times more for general liability insurance than home inspectors, locksmiths, and snow or ice removal contractors, according to Insureon, an independent insurance agency. There is a much higher risk of accidents as a roofer than as a locksmith, so you’ll pay more for the same coverage.

The table below shows the median monthly cost Insureon customers pay for two types of contractors business insurance policies. Comparing quotes from several small-business insurance companies can help you find the best coverage and price.

Contractor policy typeMedian monthly cost for general contractorsMedian monthly cost for construction businesses and contractors

General liability insurance

$142

$80

Business owners policy (BOP)

$121

$98

Workers’ compensation

$318

$254

Commercial auto insurance

$180

$173

Contractor’s tools and equipment (inland marine)

$14

$14

Professional liability insurance

$74

$74

Commercial umbrella insurance

$143

$81

Builder’s risk insurance

$134

$105

Surety bond

$10

$8

Where can you get contractor insurance?

Many insurance companies offer commercial insurance to protect your contractor business. Which company is the best fit depends on how fast you need coverage, the types of policies you need, and the type of work you do. The best way to find the right coverage is to compare quotes with different business insurance providers.

If you need coverage fast and are comfortable with getting quotes and applying online, consider:

  • Next Insurance: Next offers contractors insurance tailored to your specialty. After you purchase a policy, you can send a digital certificate of insurance to clients or contractors upon request.
  • Thimble: Whether you're hiring subcontractors to work for you or you’re doing the work yourself, Thimble offers temporary or permanent coverage to protect your business and meet contract requirements.

If you’re not sure what insurance coverage you need or prefer to work directly with an insurance agent, check out the following insurers.

Nationwide

With highly customizable contractor insurance policies, Nationwide may be a good fit if you need specialty coverage. For example, you can expand the general liability insurance basic coverages to include add-ons like product and completed operations liability, liquor liability, directors and officers liability, or hired and non-owned auto liability coverage.

State Farm

Artisan and service contractors, like carpenters, electricians, and lawn care specialists, may want to consider State Farm’s package coverage. It can include coverage for business personal property, liability, completed operations, mobile equipment, property of others, and building property.

The Hartford

A BOP from The Hartford may be a good idea if you’re looking for a policy bundle instead of purchasing a la carte. The Hartford offers options like cyber insurance, business income insurance, management liability, and workers’ compensation.

I'm an expert in the field of small business insurance, and I've got a wealth of knowledge to share on the topic. Having worked extensively in the industry, I can provide you with detailed insights into how contractor insurance works and what it covers. Let's dive into the key concepts mentioned in the article.

Contractor Insurance Overview: Contractor insurance is crucial for protecting small businesses from various risks that could lead to financial losses. It's often a package of different policies bundled together to provide comprehensive coverage.

Types of Contractor Insurance:

  1. General Liability Insurance:

    • Covers third-party property damage, bodily injury, and other harm during work.
    • Example: Accidentally injuring a client while accessing tools.
  2. Inland Marine Insurance:

    • Covers repair or replacement of business property (tools, equipment) if damaged, lost, or stolen.
    • Example: Stolen tools from a job site.
  3. Business Owner’s Policy (BOP):

    • Combines general liability and commercial property insurance.
    • Discounts available for bundled coverage.
  4. Commercial Property Insurance:

    • Covers business equipment, tools, and buildings against damage from events like weather or fire.
  5. Commercial Auto Insurance:

    • Covers work vehicles in case of accidents.
    • Almost always required for business-owned vehicles.
  6. Workers’ Compensation Insurance:

    • Covers medical bills and lost wages for work-related injuries.
    • Includes employer’s liability insurance for lawsuit expenses.
  7. Professional Liability Insurance (Errors and Omissions - E&O):

    • Covers mistakes made during professional services.
    • Example: Legal fees for missed deadlines.
  8. Builders Risk Insurance:

    • Covers buildings under construction against damage (fire, theft, vandalism).
  9. Commercial Umbrella Insurance:

    • Increases liability limits for underlying policies in case of a claim.
  10. Surety Bonds:

    • Reimburses the customer if the contractor can't fulfill the contract terms.

Cost Factors: Contractor insurance costs vary based on factors like business location, number of employees, type of business, chosen insurance company, and coverage specifics.

Where to Get Contractor Insurance: Several insurance companies offer commercial insurance for contractors. Some options include:

  • Next Insurance: Offers tailored coverage with the ability to send digital certificates.
  • Thimble: Provides temporary or permanent coverage for various needs.
  • Nationwide: Customizable policies, especially suitable for specialty coverage.
  • State Farm: Package coverage for artisan and service contractors.
  • The Hartford: Offers policy bundles and various coverage options.

Comparing quotes from different providers is recommended to find the best coverage and price for your specific needs. If you have any specific questions or need further details, feel free to ask!

Contractor Insurance Guide for 2024 (2024)

FAQs

What are the three types of insurance that are most relevant to construction projects? ›

Typically, these project contracts will require the contractors to at least carry general liability, workers' compensation, and builders risk insurance. Sometimes, surety bonds and inland marine insurance will also be required, but much less often.

Which type of insurance will cover the structure during construction? ›

In the simplest terms, builders risk insurance (also known as course of construction or inland marine coverage) insures a structure while under construction.

What is property insurance for a construction project called? ›

Builder's risk insurance (also called course of construction insurance) is property insurance that protects buildings while they are under construction, either during a remodel or new construction. It helps mitigate the risk of certain damages during the construction process.

Are contractors required to have insurance in Florida? ›

Though the state of Florida requires its contractors to have public liability insurance, property damage liability insurance, and workers' compensation insurance, other insurance policies offer additional protection for your business.

What are the 4 most important insurances? ›

Most experts agree that life, health, long-term disability, and auto insurance are the four types of insurance you must have.

What are the two most important insurance options available to a business? ›

Commercial insurance is divided into two main categories: property insurance and casualty insurance. Property insurance provides coverage for property that is stolen, damaged, or destroyed by a covered peril. The term "property insurance" includes many lines of available insurance.

How do you calculate builders risk premium? ›

How to Calculate Builders Risk Insurance Premiums
  1. Determine the Insured Value of the Project. ...
  2. Assess the Construction Duration. ...
  3. Evaluate the Location and Risk Factors. ...
  4. Consider the Type of Construction. ...
  5. Determine Deductibles and Coverage Limits. ...
  6. Seek Quotes from Multiple Insurers. ...
  7. Consult with an Insurance Professional.
Dec 13, 2023

What is not usually covered by building insurance? ›

Termites and insect damage, bird or rodent damage, rust, rot, mold, and general wear and tear are not covered. Damage caused by smog or smoke from industrial or agricultural operations is also not covered. If something is poorly made or has a hidden defect, this is generally excluded and won't be covered.

What is the difference between COC and builders risk? ›

Builder's risk insurance is also known as course of construction (COC) insurance. This is the same type of insurance coverage that protects construction projects from a variety of risks and perils. Insurance companies may use these two names interchangeably.

Is builders risk insurance better than ho3? ›

Builders risk insurance has a broader coverage scope than a homeowners policy. Builders risk for remodels or new home construction is the best coverage option because you get comprehensive course of construction insurance under one policy, rather than tacking on coverages to a homeowners policy.

What is insurance used for in construction? ›

Construction insurance protects construction companies, general contractors, and property owners from lawsuits, property loss, and other costly liabilities. For many construction and contractor companies, a single insurance policy will not be enough.

What is the difference between property insurance and builders risk insurance? ›

Builder's Risk Insurance is typically temporary and covers the construction period until the project is completed or the policy term expires. Property Insurance, on the other hand, offers long-term coverage for the life of the property, subject to renewal.

What is the minimum insurance for a contractor in Florida? ›

General Liability Insurance requirements for Florida contractors
LiabilityProperty Damage
General Contractor$300,000$50,000
Building Contractor300,00050,000
Residential Contractor100,00025,000
Sheet Metal Contractor100,00025,000
12 more rows

What insurance is required for a general contractor in Florida? ›

Florida general contractor license requirements

Proof of general liability and workers' compensation insurance (you'll need a certificate of insurance for this) A passing grade on the Florida state construction examination. Application fee (which varies depending on the type of license you're applying for)

How long is a contractor liable for work in Florida? ›

In Florida, the time limit to make a claim is generally 4 years from when the defect is discovered (or should have been discovered), under Florida's statute of limitations for defect claims. For latent defects, the deadline (“statute of repose”) is 10 years from the completion of the business' work.

What are the three 3 main types of insurance? ›

Although there are many insurance policy types, some of the most common are life, health, homeowners, and auto. The right type of insurance for you will depend on your goals and financial situation. Consumer Financial Protection Bureau.

What are the 3 primary sources of insurance? ›

Bottom Line. Health insurance options are predominantly categorised into three primary sources: employer-sponsored, government-sponsored, and individual health insurance. Each avenue presents distinct advantages and disadvantages, emphasising the need for a thoughtful selection aligned with individual circumstances.

Which one of the 3 types of insurance is required by law? ›

Coverage Summary

Liability Coverage is for accidents that are your fault. Bodily injury liability pays for bodily injury you cause someone else. Property damage liability pays for property damage you cause someone else. California law requires you to have this coverage.

What are the three types of construction projects? ›

Construction projects are often categorized based on their scale, the types of structures being built, and the purpose of the project (also called “end use” or “land use”). Broadly, there are six types of construction projects: residential, commercial, institutional, mixed-use, industrial, and heavy civil.

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