Contractor Insurance: What You Actually Need (and What You Don't)

Insurance Types Explained

General Liability (GL)

What it covers: Third-party bodily injury (client trips over your equipment), property damage you cause, personal injury (slander, defamation claims), medical payments, and legal defense costs.

What it doesn't cover: Your injuries (that's workers comp), your vehicle accidents (that's auto), professional errors (that's E&O), or contract disputes.

Typical coverage: $1M per occurrence / $2M aggregate. Cost: $500-2,000/year for small contractors.

Workers Compensation

What it covers: Employee injuries on the job — medical expenses, lost wages, disability benefits, and death benefits.

Who needs it: Required in most states if you have employees. Some states require it for sole proprietors in certain trades. Often required by general contractors.

Cost: $0.50-$15+ per $100 of payroll depending on trade.

Commercial Auto

What it covers: Vehicle accidents (liability), damage to your vehicle, uninsured motorist coverage, and medical payments.

Important: Personal auto policies typically exclude business use. If you drive to job sites, you need commercial coverage.

Cost: $1,500-5,000/year per vehicle.

Tools and Equipment

What it covers: Stolen tools, damaged equipment, and replacement costs via inland marine or contractor's equipment floater policies.

Cost: $200-500/year for basic coverage.

Professional Liability (E&O)

What it covers: Design errors, professional mistakes, failure to perform as contracted. Needed for design-build contractors and consultants.

Cost: $500-2,500/year.

What You Actually Need

📋 Minimum Insurance for Most Contractors

Insurance	Why You Need It
General Liability ($1M)	Required by most clients/contracts
Commercial Auto	If you drive for business
Workers Comp	If you have any employees

What Affects Your Premium

💰 Premium Cost Factors

Trade classification	Roofer pays more than painter
Annual revenue	Higher revenue = higher premium
Claims history	Claims = higher rates
Experience	More years = potentially lower
Coverage limits	Higher limits = higher premium
Deductible	Higher deductible = lower premium

Cost Reduction Strategies

Higher deductible — Lowers your premium
Bundle policies — Multi-policy discounts
Safety program — Shows reduced risk
Claims-free record — Lower experience modification rate
Accurate classification — Don't pay for the wrong code
Annual review — Adjust coverage to actual needs

🚨 What NOT to Do Don't underreport payroll (fraud that will catch up to you), choose minimum coverage to save money (leaves you exposed), go without insurance (one claim can end your business), or lie on applications (policy can be voided when you need it most).

Shopping for Insurance

Where to buy: Independent agent (compares multiple carriers), direct from carrier websites, insurance marketplaces, or industry-specific brokers.

What to compare: Premium cost, coverage limits, exclusions, deductibles, carrier rating (A.M. Best), and claims process reputation.

Red flags: Extremely low quotes (may have exclusions), unknown carriers (check financial rating), excessive exclusions, and poor claims reputation.

💡 The Bottom Line Start with General Liability ($1M minimum), add Workers Comp if you have employees, Commercial Auto if driving for business, and Tools/Equipment coverage based on value at risk. Don't skip insurance — one claim can wipe out your business.

Frequently Asked Questions

How much does contractor insurance cost?

General liability: $500-2,000/year for small contractors. Workers comp: $0.50-$15+ per $100 of payroll. Commercial auto: $1,500-5,000/vehicle. Total varies widely based on trade, size, and coverage needs.

Is contractor insurance required by law?

Workers comp is required by law in most states if you have employees. General liability isn't legally required but is required by most clients and contracts.

What does general liability cover for contractors?

Third-party bodily injury, property damage, and personal injury claims. It does NOT cover your own injuries, vehicle accidents, or professional errors.

What's the difference between occurrence and claims-made policies?

Occurrence covers claims from incidents during the policy period, regardless of when the claim is filed. Claims-made covers claims filed during the policy period. Occurrence is generally better for contractors.