Contractor Insurance: Essential Costs & Types Explained (2024)

Whether you have a job to remodel a kitchen, build a patio or install a jacuzzi bathtub, plenty of things can go wrong in the process. For example, faulty plumbing could lead to a water leak and thousands of dollars in property damage. Or your employee might hurt themselves on the job. That’s why you need contractors insurance.

What Is Contractors Insurance?

Contractors insurance is a small business insurance policy that is custom-built to address the specific risks that come with the job. A good contractors insurance policy contains several types of coverage that protect your business from problems such as accidents, lost income, lawsuits, and stolen, lost or damaged tools.

For example, if you accidentally damage someone’s home while doing a job, the general liability portion of your contractors insurance can pay for repairs.

How Much Does Contractors Insurance Cost?

There are several cost factors that will determine your contractors insurance costs, such as:

• Insurance coverage needs. The types of coverage you choose, along with your policy limits, will be a factor in your insurance costs. Generally, higher coverage amounts means higher insurance premiums.
• Number of employees. The more employees you have, the more you pay for workers compensation insurance.
• Prior claims history. Your insurer reviews your prior business claims history when determining your costs.
• Other pricing factors. Your insurer likely looks at other cost factors, like your business assets, the business property owned, your business location and the size of your payroll to estimate costs.

Example of the cost of contractors insurance

Here’s an example of how much a contractors insurance might cost. Your costs will vary depending on what type of coverage you buy and other pricing factors.

7 Ways to Save on Contractors Insurance

Here are some ways to find cheap business insurance:

1. Compare business insurance quotes. Not all insurers price their business insurance policies the same. You can take advantage by comparing business insurance quotes from multiple insurers to find the best price.
2. Bundle up.A business owners policy (BOP) bundles three important coverage types: general liability insurance, including independent contractor liability insurance; business interruption insurance; and commercial property insurance. It’s cheaper to buy them as a bundle rather than separate insurance policies.
3. Implement a safety program. You may qualify for savings if you implement and document a safety program.
4. Classify your workers correctly for workers comp. It’s a good idea to have accurate and detailed job descriptions for your employees and make sure they do not perform duties outside of their classification. This can help you save on workers compensation insurance. If you’re not sure how to classify your employees, you can speak with your insurance agent.
5. Join a trade or industry association. If you join a trade association with at least 300 members with several that share the same risks as your business, you may save on your workers compensation insurance by getting a group rate.
6. Pay your premium in full. You may qualify for a discount if you pay your premium in full rather than monthly.
7. Increase your commercial car insurance deductible. The insurance deductible is the amount that gets deducted from an insurance check if you make a claim. If you choose a higher deductible, your insurer will pay less if you file a claim, which means cheaper premiums.

Who Needs Contractors Insurance?

A contractor is hired by a client to complete a project. For example, a homeowner hires you to build an addition to their home. A contractor can be broken down into two types:

• Contractor. Sometimes referred to as a general contractor, they are responsible for overseeing the completion of the project and fulfilling the contract. For example, the completion of an addition to a home.
• Subcontractor. A worker or company hired by the contractor to perform specific tasks or services for a project. For example, a contractor hires an electrician to install wiring in the new addition. Generally, a subcontractor reports to the contractor, not the client.

No matter if your business does general contractor or subcontractor work, you need contractor insurance to protect your business from work-related accidents. Here are examples of contractors that would need contractor insurance:

• Appliance technician
• Carpenters
• Concrete contractors
• Construction workers
• Drywall contractors
• Electricians
• Excavators
• Handyperson
• HVAC contractors
• Landscapers
• Painters
• Plumbers
• Masons
• Roofers
• Snow plowing
• Tile, stone and flooring installers
• Tree service
• Welders

What Does Contractors Insurance Cover?

A good contractor insurance policy contains several types of small business insurance that cover your business from a variety of problems. Those issues can include the cost of claims, lawsuits and damages to your business property. The coverage types you choose depend on the contractor business’ specific needs.

A good place to start is with a business owners policy (BOP). A BOP bundles three essential coverage types, and it’s typically cheaper than buying each coverage type separately.

Here’s what a BOP includes:

Business liability insurance

This is the foundation of a small business insurance policy. Business liability insurance covers property damage and bodily injuries accidentally caused to others (not including your employees). For example, if your tree service causes a heavy branch to land on a client’s roof, you can tap your general liability insurance to pay for repairs.

Commercial property insurance

This covers your business’s physical location and business equipment if they’re damaged due to a problem covered by your policy, such as a tornado. Commercial property insurance covers both leased and owned equipment, including items like office furniture, tools, inventory, supplies, computers, business records and valuable papers.

Business interruption insurance

If you have to temporarily close your business due to a problem covered by your policy, like a theft or fire, business interruption insurance replaces lost income. Also known as “business income insurance,” this covers problems such as wind damage, lost earnings, money lost due to damaged merchandise and the cost of moving to a new location temporarily.

What’s Not Covered by Contractors Insurance?

There are several types of problems that contractors insurance won’t cover. Here are some examples of common exclusions:

• Floods (you need to buy a separate flood insurance policy)
• Earthquakes (you need to buy a separate earthquake insurance policy)
• Radioactive fallouts
• War
• Infectious diseases
• Government seizures
• Wrongful termination (unless you have employment practices liability insurance)
• Intentional and fraudulent acts

Other Small Business Insurance Types

While a BOP lays a solid foundation for your contractors insurance policy, you may want to bolster your insurance with additional coverage types. It’s a good idea to speak with your agent and buy enough insurance to meet the demands of your business.

Here are some common small business insurance types to consider:

Builder’s Risk Insurance

Builder’s risk insurance covers property and construction materials while you’re working on a project. You can typically buy builders’ risk policies for new construction projects, installation work and remodeling. This coverage is also called “course of construction insurance.”

Commercial auto insurance

If you use a car for work-related tasks, such as meeting with clients or transporting materials to a job site, you need commercial auto insurance. Your personal car insurance won’t cover business use.

Here are some examples of business use:

• You haul tools and equipment in your vehicle
• You conduct a business service in your car
• Your employee drives your vehicle
• Your vehicle is solely used for work
• You transport goods or people in your vehicle for work purposes
• The vehicle is owned by your company

Here are common commercial auto insurance coverage types:

• Bodily injury liability. This covers injuries to others accidentally caused by you or your employees.
• Property damage liability. This covers property damage to others accidentally caused by you or your employees.
• Combined single limit (CSL). This combines one overall limit for bodily injury and property damage claims against you rather than having two separate limits.
• Medical payments and personal injury protection (PIP). This covers you and your passengers’ medical expenses, no matter who is at fault for the car accident.
• Collision insurance. This covers repair and replacement costs if you or your employees get into a car accident.
• Comprehensive insurance. This covers to repair or replace your vehicle for problems like theft, vandalism, fires and floods.
• Uninsured motorist (UM) coverage. This covers injuries to you and your passenger if a driver without car insurance or someone who doesn’t have enough car insurance to cover your medical expenses hits you. In some states, you can buy UM to cover damage to your car from an uninsured driver.

Commercial umbrella insurance

If you need an extra layer of protection on top of your general liability insurance, you may want to consider adding commercial umbrella insurance. For example, if your business gets sued for $900,000 and your general liability limits are $500,000, umbrella insurance would cover the $400,000 shortfall.

Contractor’s tools and equipment insurance

If your tools and equipment are lost, stolen or damaged, this covers the cost to repair and replace them. For example, if someone swipes an expensive power saw from the job site. This coverage may have specific limitations. For example, contractor’s tools and equipment insurance from Insureon is limited to small tools, mobile equipment and equipment less than five years old.

Equipment breakdown insurance

If you rely on certain types of machinery and tools to complete your projects, this insurance type covers the cost to repair and replace your equipment due to unexpected breakdowns. It doesn’t cover normal wear and tear.

Errors and omissions insurance

Also known as professional liability, this covers you when a client accuses you of not having done your work properly, whether the accusation has merit or not. For example, if you’re a plumber and a client says your poor workmanship caused a leak and water damage, errors and omissions insurance covers your legal costs, court judgments and settlements.

Hired & non-owned auto insurance

If you or your employees use a personally owned or rented car for business use, this covers injuries and property damage caused to someone else. For example, your employee drives a rented van to deliver materials to a job site.

Inland marine insurance

This covers your mobile machinery and tools while in transit to the job site. This is also called “property in transit” insurance. You can also add an installation floater endorsem*nt that covers your machinery, equipment, and materials while awaiting installation.

Surety bond

In addition to these coverage types, you may be required to have a surety bond to get a business license or permit. A surety bond covers the cost of claims about poor or incomplete workmanship, as well as fraud and theft. This is the type of bond the term “bonded and insured” refers to.

Workers compensation insurance

Most states require workers compensation insurance, even if you only employ a single worker. It covers medical expenses, lost wages and disability benefits if your employees get ill or injured while doing job-related duties.

Examples of Contractors Insurance Claims

Here’s a look at a few claims scenarios and the contractors insurance coverage type that would apply:

Where Can You Get Contractors Insurance?

A good contractors insurance policy is a mix of essential coverage types that meet the specific risks your company faces. Most insurers sell common types of business insurance that you can select to customize your policy, such as a BOP, commercial auto insurance and workers compensation.

Here is a list of some small business insurance companies:.

• Acuity
• Allianz
• Allstate
• American Family Insurance
• AmTrust Financial
• Auto-Owners Insurance
• Berkshire Hathaway
• Chubb
• Cincinnati Insurance
• Clear Blue Insurance Co.
• CNA
• Erie Insurance
• Farmers Insurance
• Frankenmuth Insurance
• The Hanover
• The Hartford
• Liberty Mutual
• Nationwide
• State Farm
• Tokio Marine
• Travelers
• Utica First Insurance
• Westfield Insurance

Contractors Insurance FAQ