The average uninsured construction claim costs $48,000. The average GL lawsuit against a contractor costs $75,000 to defend — before any judgment. Workers' compensation claims in construction average $38,000 per lost-time injury.
Most contractors buy the minimum required to get licensed and win bids, then find out too late the minimum wasn't enough.
The 6 Core Insurance Policies for Contractors
|
Policy |
Protects Against |
Required By |
|
General Liability (GL) |
Third-party bodily injury, property damage, completed operations |
State licensing, most contracts |
|
Workers' Compensation |
Employee injury and illness on the job |
State law (if you have employees) |
|
Builder's Risk |
Damage to the project under construction |
Commercial contracts, lenders |
|
Commercial Auto |
Vehicle accidents in company vehicles |
State law; any owned vehicle |
|
Professional Liability / E&O |
Claims from design errors or professional advice |
Design-build contractors |
|
Umbrella / Excess Liability |
Coverage above GL and auto limits |
Large commercial projects |
1. General Liability Insurance
Covers third-party claims for bodily injury, property damage, and completed operations.
What GL does NOT cover: Employee injuries (workers' comp) | Your own tools (inland marine) | Design errors (E&O) | Auto accidents (commercial auto) | Pollution/mold (separate endorsements)
Coverage limits:
|
Term |
Meaning |
|
Per-occurrence limit |
Max paid per single claim |
|
General aggregate |
Max paid for all claims in policy year |
|
Products/completed operations aggregate |
Max for post-completion claims |
Standard: $1M/$2M/$2M. Most commercial owners require $2M/$4M.
Annual GL premium benchmarks:
|
Business Size |
Annual Premium |
|
Solo contractor |
$500–$1,200 |
|
Small GC (2–5 employees) |
$2,000–$6,000 |
|
Mid-size GC (6–20 employees) |
$6,000–$18,000 |
|
Specialty trade (electrical, plumbing) |
$3,000–$10,000 |
|
Roofing contractor |
$8,000–$25,000 |
Critical policy features:
- Occurrence vs. claims-made: Always get occurrence — completed operations claims surface years after project completion
- Additional insured endorsements: Owners and GCs require you to name them as AIs
- Primary and non-contributory: Your policy must pay first and not seek contribution from the owner's insurer
- Waiver of subrogation: Your insurer agrees not to sue the additional insured to recover claim payments
2. Workers' Compensation Insurance
Covers medical expenses, lost wages, and rehab for employees injured on the job. Required in most states from employee #1.
Rates are based on payroll and trade classification:
|
Trade |
Rate per $100 of Payroll |
|
Carpentry — residential |
$8–$15 |
|
Electrical |
$4–$8 |
|
Plumbing |
$5–$10 |
|
Roofing |
$25–$45 |
|
Concrete / masonry |
$8–$16 |
|
Painting — exterior |
$8–$14 |
|
General laborer |
$10–$18 |
A roofer earning $60,000/year = $15,000–$27,000 in annual workers' comp premium alone.
Experience Modification Rate (EMR): Multiplier based on claims history. EMR 0.75 = 25% discount. EMR 1.25 = 25% surcharge. Many commercial GCs require EMR below 1.0 to bid. A bad claims year follows you for 3 years.
The 1099 trap: Misclassifying employees as independent contractors to avoid workers' comp can result in back premiums, penalties, and personal liability for injuries. Apply the IRS 20-factor test before classifying anyone as 1099.
3. Builder's Risk Insurance
Covers the project itself during construction — fire, wind, theft, vandalism.
What it does NOT cover: Your tools and equipment | Employee theft | Earthquake/flood | Faulty workmanship
Cost: Typically 1–4% of completed project value, prorated for construction period.
Example: $500K project at 2%, 8-month build = $6,667
Key terms:
- Replacement cost (not actual cash value) — always
- Soft costs endorsement — covers architect fees, permits, financing costs if a loss delays the project
- Either owner or GC can carry it — clarify in the contract
4. Commercial Auto Insurance
Personal auto policies explicitly exclude business use. Any vehicle used for business needs a commercial policy.
Annual premium benchmarks:
|
Vehicle |
Annual Premium |
|
Pickup / work van |
$1,200–$2,500 |
|
Heavy duty truck (F-350+) |
$1,800–$3,500 |
|
Trailer |
$300–$600 |
Hired and Non-Owned Auto (HNOA): Covers employees driving personal vehicles on business. Add as a GL endorsement for $200–$500/year. If your crew drives their own trucks to the job site, you need this.
5. Professional Liability / E&O
Covers claims from professional errors, omissions, or negligent advice — even without physical injury or property damage.
Who needs it: Design-build contractors | Project managers | Green building contractors who guarantee performance | Home inspectors
Cost: $1,000–$5,000/year for small contractors. $5,000–$20,000+ for design-build firms.
E&O is claims-made. When the policy lapses, you lose protection for past work. Buy tail coverage if you stop doing design-build.
6. Umbrella / Excess Liability
Pays above your GL and auto limits when a single claim exceeds them.
Example: $3.5M judgment. GL pays $1M. Umbrella pays $2.5M. Without umbrella — you pay $2.5M personally.
Cost: $500–$1,500/year for $1M umbrella — highest value purchase per premium dollar in construction insurance.
Additional Coverages Worth Considering
|
Coverage |
What It Covers |
Annual Cost |
|
Inland marine |
Your tools and equipment — anywhere |
$500–$2,000 |
|
Contractor's pollution liability |
Fuel spills, mold, dust migration |
$1,000–$5,000 |
|
Surety bonds (performance/payment) |
Project completion guarantees for public/commercial work |
1–3% of bond amount |
How Much to Budget for Insurance
[SVG chart: Insurance as % of revenue — Solo 1.5–2.5% | Small GC 2–4% | Electrical/plumbing 3–5% | Mid-size GC 3–6% | Concrete/masonry 4–7% | Roofing 8–15% | Design-build 4–8%]
Budget insurance as a line item in overhead — not a surprise cost. Most GCs allocate 3–6% of revenue. Roofing: 8–15%. If you're not tracking this, your markup isn't covering the real cost.
Common Insurance Gaps
[SVG table: Personal auto on job site → no coverage → add HNOA | Tools stolen → GL doesn't cover your property → inland marine | Claims-made E&O lapsed → past work unprotected → buy tail coverage | Sub injury (no WC) → GC may be liable as statutory employer → require sub WC certs | No completed operations coverage → post-job claims denied → occurrence policy | Pollution exclusion → spills/mold claims denied → contractor pollution liability]
How to Buy Contractor Insurance
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- Work with a construction-specialist broker — not a general agent
- Get at least 3 quotes — premiums vary 40–60% between carriers for identical risks
- Don't buy the cheapest — read the exclusions; a cheap policy with no completed operations coverage is not a bargain
- Review your COI before submitting to clients — limits, additional insureds, and primary/non-contributory language must match the contract
- Audit annually — coverage needs change as payroll, equipment, and project size grow
Insurance Checklist
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Minimum viable (any contractor with employees):
- [ ] General liability — $1M/$2M minimum; occurrence form
- [ ] Workers' compensation — required in most states
- [ ] Commercial auto — any owned vehicles
Strongly recommended:
- [ ] Umbrella — $1M minimum; $2M+ for commercial work
- [ ] Inland marine — tools and equipment over $10K
- [ ] Hired and non-owned auto — if employees drive personal vehicles on business
- [ ] Builder's risk — if not provided by owner
Situational:
- [ ] Professional liability / E&O — design-build or PM services
- [ ] Contractor's pollution liability — excavation, demolition
- [ ] Surety bonds — public work, large commercial
Relevant Article:2026 Guide to Construction Software for General Contractors