Below are the essential insurance types contractors need and how much coverage to carry for each. The right policies protect your crew, your equipment and your business from liability claims because without them, a single accident or lawsuit could put you out of business.
What Insurance Do You Need For a Contractor Business?
Contractors need general liability, workers' compensation, commercial auto and contractor bonds for financial protection and compliance.
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Updated: December 29, 2025
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Contractor Business Insurance Requirements: Key Takeaways
General liability insurance is the most critical coverage for contractors due to high claim rates from property damage and job site injuries. (Read More)
Contractors commonly need workers' compensation, commercial auto insurance, contractor bonds and general liability mandated by law or contract. (Read More)
Optional coverage contractors should consider includes tools and equipment insurance, professional liability and commercial umbrella insurance.
Get COIs from your insurer, verify coverage matches contract requirements, add clients as additional insured and send proof to licensing boards. (Read More)
What Insurance Types Are Needed For a Contractor Business?
Medical costs and lost wages for employees hurt on the job. Required by law in most states once you hire your first employee, with fines up to $10,000 per employee if you operate without it. | State-mandated minimum coverage, which varies by location and payroll size. | A framing carpenter fell 12 feet from scaffolding, fracturing his pelvis and breaking his arm. Emergency surgery ($89,000), follow-up treatment ($67,000) and five months of lost wages ($32,000) totaled $188,000—all covered by workers' comp. | |
Third-party bodily injury and property damage from your work on job sites. Covers repair costs, medical bills and legal defense when your work damages client property or injures homeowners and visitors. | $1 million to $2 million per occurrence with $2 million aggregate for most contractors. Larger commercial projects often require higher limits. | A contractor's employee knocked over a space heater while installing hardwood, starting a fire that caused $128,000 in damage: kitchen ($45,000), cabinetry ($28,000), appliances ($12,000), smoke damage ($35,000) and temporary housing ($8,000). General liability covered everything plus legal fees. | |
Accidents, injuries and vehicle damage when transporting materials, traveling between job sites or hauling equipment. Required in 49 states for business-owned vehicles. | $1 million combined single limit (CSL) for contractors regularly hauling expensive tools and materials. State minimums range from 25/50/10 to 100/300/100. | A contractor's truck blew through a stop sign and caused an accident costing $135,500: other driver's medical bills ($42,000), their vehicle repairs ($28,000), totaled truck replacement ($35,000), destroyed tools ($18,000) and legal fees ($12,000). Commercial auto paid all but the $1,000 deductible. | |
Power tools, machinery and equipment on job sites, in transit or in storage. Covers theft, damage, vandalism and breakdown of saws, drills, scaffolding, generators and laser levels. | $15,000 to $50,000 based on your tool inventory value. | Thieves stole $38,000 in equipment from a trailer overnight: power saws, nail guns, drills, compressors, laser levels, scaffolding and carpentry tools. The crew couldn't work for a week, losing $8,500 in revenue, but the insurance claim paid out in five days with full replacement cost. | |
Claims that your work was faulty, had design errors, missed deadlines or didn't meet specs. Covers legal defense and settlements when clients say your work violated the contract or cost them money. | $1 million per claim with $1 million to $2 million aggregate. Commercial clients increasingly require this before hiring. | A contractor's bathroom waterproofing failed, causing hidden damage the homeowner found months later. Repairs cost $116,000: wall framing ($18,000), bathroom reinstall ($52,000), ruined furniture ($15,000), mold cleanup ($22,000) and temporary housing ($9,000). Professional liability paid the settlement plus $28,000 in legal costs. | |
Builder's Risk Insurance | Construction projects during building, protecting structures, materials and equipment from fire, theft, vandalism and weather. Standard property policies don't cover buildings under construction. | Coverage matching total project value, typically $100,000 to several million depending on scope. | Three months into a $450,000 home addition, a storm destroyed the roofing ($12,000) and framing ($35,000), damaged windows ($18,000), ruined materials ($15,000) and caused water damage ($28,000). Vandals then stole copper plumbing ($8,000) and electrical supplies ($6,000). Builder's risk covered all $122,000. |
Contractor Business Insurance Requirements
Contractors have insurance requirements from three sources: state law, client contracts and project agreements. What you need depends on your state, how big your projects are and who you work for. Skip the required coverage and you're looking at fines, losing your license, getting dropped from contracts or paying claims out of pocket.
Workers' Compensation Insurance | Required by law in most states once you hire employees. New York mandates coverage with one part-time worker, while Florida requires it after four employees. Penalties include fines up to $10,000 per employee, criminal charges, license suspension, and personal liability for worker injury costs. | Your state workers' compensation board sets coverage amounts based on payroll and industry classification codes. Contractor trades like roofing and framing face higher rates due to increased injury risks, with premiums calculated as a percentage of total payroll. |
General Liability Insurance | Commercial clients, property owners, general contractors, and municipalities require proof of coverage before awarding contracts or allowing work on their property. Many contracts require adding the client as an additional insured. Without a certificate of insurance, you can't secure contracts or access job sites. | Standard requirements are $1 million per occurrence and $2 million aggregate. High-value commercial projects, luxury residential work, and government contracts require $2 million to $5 million in total coverage. Some clients mandate products-completed operations coverage of $1 million or more. |
Commercial Auto Insurance | Required by law in 49 states for business-owned vehicles, including trucks, vans, trailers, and heavy equipment on public roads. Personal auto policies exclude commercial use, leaving you personally liable for accidents and subject to criminal penalties without proper coverage. | State minimum liability limits range from 25/50/10 to 30/60/25, but contractors need $1 million combined single limit (CSL) to protect against accidents involving expensive equipment, materials, and third-party injuries. Financed vehicles also require comprehensive and collision coverage. |
Contractor License Bonds | Required in most states and municipalities for obtaining and maintaining contractor licenses. These bonds guarantee you'll comply with licensing laws, building codes, complete work as contracted, and pay subcontractors and suppliers. Bond claims can trigger license revocation. | Bond amounts vary by state and license classification. California requires $25,000 for general contractors. Florida mandates $20,000 for Division I contractors and $10,000 for Division II. Most states require $10,000 to $25,000 for residential contractors, while commercial licenses require $15,000 to $100,000. |
Performance and Payment Bonds | The Miller Act requires these bonds on federal construction projects exceeding $150,000. State "Little Miller Acts" mandate similar bonds for state-funded projects. Private commercial clients increasingly require bonds on projects over $100,000 to guarantee completion and subcontractor payment. | Performance bonds equal 100% of contract value on public projects and 50% to 100% on private projects. Payment bonds match performance bond amounts. A $500,000 project requires $500,000 performance bond and $500,000 payment bond. Federal and state projects always require full contract value bonding. |
Builder's Risk Insurance | Required by construction lenders for financed renovation and new construction projects. Property owners mandate this coverage in contracts for projects exceeding $50,000 to protect their investment during construction. Lenders require themselves listed as loss payee or additional insured. | Coverage must equal completed project value, including materials, labor, and soft costs. A $300,000 renovation requires $300,000 in coverage. Lenders may require 100% to 120% of estimated costs to account for potential overruns during construction. |
Required by landlords when leasing office space, warehouses, or storage facilities. Lenders financing purchased properties mandate this coverage. Landlords require proof before allowing equipment or materials into leased spaces. | Coverage must match building replacement cost (if owned) or business personal property and improvements value (if leasing). Requirements range from $100,000 to $500,000 depending on facility size, inventory, and equipment costs. Landlords specify minimum coverage in lease agreements. | |
Required by high-value commercial clients, luxury residential projects (homes over $1 million), large general contractors, and government agencies on major projects. This additional liability layer provides access to larger, more profitable contracts. | Premium commercial clients and government contracts require $3 million to $5 million in total liability coverage. Luxury residential clients mandate $5 million to $10 million. The umbrella must sit above adequate underlying general liability ($1 million minimum) and commercial auto ($1 million minimum). | |
How To Ensure Contractor Business Insurance Requirements Are Met
Meeting insurance requirements protects your contractor business from legal issues, contract disputes and licensing problems. Follow these steps to satisfy requirements and maintain compliant coverage.
- 1Request COIs and verify coverage matches requirements
After purchasing contractor insurance policies, request a Certificate of Insurance from each insurer. Most providers deliver COIs via instant download or email within minutes to hours.
Review each certificate immediately to confirm policy limits match your specific requirements. Check that general liability shows the required $1 million per occurrence and $2 million aggregate, verify bond amounts match state licensing minimums, and ensure commercial auto meets contract specifications.
- 2Add clients as additional insured when required
General contractors and property owners often require additional insured status on your general liability policy before you start work. Contact your insurer to add this endorsement, which costs $20 to $50 per client annually.
Request an updated COI showing the additional insured endorsement. Send this certificate to the client or GC before your first day on the job site.
- 3File required documentation with licensing boards and submit COIs to clients
File contractor bonds directly with your state licensing board to maintain your license in good standing. Each state has specific filing requirements and deadlines for license renewals.
Submit COIs to general contractors before mobilizing equipment or crews to job sites. Provide certificates to property owners, landlords for leased office or storage space, and municipalities requiring them for permits or business licensing.
- 4Update coverage as your business changes
Add workers' compensation insurance when you hire your first employee to comply with state law. Purchase commercial auto coverage when you buy work trucks or vans for business use.
Increase general liability limits when bidding larger projects that require higher coverage amounts. Update tools and equipment insurance as you acquire expensive machinery, specialized tools or additional vehicles. Notify your insurer within 30 days of these changes to maintain continuous coverage.
- 5Set renewal reminders and send updated COIs to active parties
Create calendar reminders 30 to 60 days before each policy renewal date to avoid coverage gaps. Review your policies annually to confirm coverage still matches your current operations and contract requirements.
Request updated COIs immediately after renewal and send new certificates to all active general contractors, clients, landlords and licensing authorities. Proactive distribution prevents work stoppages from expired certificates.
Get Business Insurance You Need For Your Contractor Business
You can find insurers specializing in contractor coverage using our matching tool below. Compare quotes from at least three providers and research their experience handling claims for job site accidents, equipment damage and construction defects. Review coverage options to ensure policies address tools and equipment protection, subcontractor liability and the performance bonds many projects require.
Get Matched To The Best Contractor Business Insurer For Your Needs
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About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. He has analyzed the insurance market for over five years, conducting original research for insurance shoppers. His insights have been featured in CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
He writes about economics and insurance, breaking down complex topics so people know what they're buying.