Guide
Contractor insurance basics — what you actually need and what it costs
Published
If you're a new contractor or you've been operating with minimum coverage because "nothing's happened yet," this guide is for you. Here's what you actually need and what it costs in 2026.
The four policies every service contractor needs
Not six. Not ten. Four.
1. General Liability (GL)
Covers bodily injury or property damage you cause while working. Customer slips on the wet floor while you're installing a water softener. You put a torch through a gas line and the house catches fire. That's what GL covers.
Typical 2026 cost: $256/month or $3,067/year for small contractors on average (source: MoneyGeek 2026 contractor insurance rates).
Cost varies significantly by trade:
| Trade | Typical annual GL cost |
|---|---|
| Handyman / low-risk | $600–$1,200 |
| HVAC service | $1,200–$2,500 |
| Plumbing service | $1,500–$3,000 |
| Electrical contracting | $1,500–$3,500 |
| Roofing / high-risk | $2,500–$6,000+ |
Source: Industry 2026 cost averages from Insureon, MoneyGeek, and specialized contractor insurance brokers.
Coverage limits you want: $1M per occurrence / $2M aggregate minimum. Most commercial customers and property managers require this. Many require $2M/$4M for bigger jobs.
2. Workers' Compensation
Legally required in almost every state if you have employees (W-2 workers). Covers medical and wage replacement if they get hurt on the job.
Typical 2026 cost: $166/month or $1,990/year on average (source: MoneyGeek 2026 data).
Rate is per $100 of payroll, and it varies massively by trade:
| Trade | WC rate per $100 payroll (2026, typical) |
|---|---|
| Office staff | $0.30–$0.80 |
| HVAC / plumbing | $4–$9 |
| Electrical | $3–$7 |
| Roofing | $20–$40 |
So a roofer paying a tech $70k/year pays $14k–$28k annually in workers comp just for that one employee. This is why roofing labor is expensive.
Some states (Texas) don't require workers comp. In those states, a contractor who opts out can still be sued for negligence in an employee injury — which is usually worse than having the policy. Don't opt out.
3. Commercial Auto
If your truck is registered to the business or primarily used for work, your personal auto policy will deny claims in many scenarios. You need commercial auto.
Typical 2026 cost: $150–$300/month per vehicle for a clean-record driver.
Minimum coverage you want: $500k combined single limit or $250k/$500k/$100k split limit. More if you carry expensive equipment in the truck.
Cheap "personal auto with business use endorsement" is a trap. It works until you have a claim, then the carrier may deny because you weren't really personal-use.
4. Tools and Equipment (Inland Marine)
Covers tools in the truck when they get stolen (very common) or damaged. A full tech truck often has $8–15k of tools — gauges, drills, specialty tools, diagnostic equipment.
Typical 2026 cost: $25–$75/month per vehicle, depending on tool value.
Most home or business property policies do NOT cover tools away from the premises. Inland marine is the right policy.
Optional but commonly needed
Professional Liability (E&O)
Covers claims that your design, advice, or recommendation caused a loss. Usually relevant for contractors who design or engineer systems (commercial HVAC, complex electrical). For pure service work, less critical.
Cost: $50–$150/month.
Commercial Umbrella
Excess liability over your GL + auto. If your GL has $1M limits and a lawsuit hits $3M, umbrella covers the gap.
Cost: $50–$150/month for a $2M umbrella.
Worth it if you have employees, trucks on the road, and significant assets to protect.
Bonds
Surety bonds are usually required for contractor licensing. They're not insurance — they're a financial guarantee that you'll perform contract work properly.
Cost: 1–3% of bond amount annually. A $10,000 license bond costs $100–$300/year.
Separate from performance bonds on specific jobs, which are a different product.
What a bundled "contractor package" costs
Insurance brokers commonly sell a "contractor business package" (BOP + WC + auto + inland marine + umbrella) for small service contractors:
- Typical 2026 bundle cost: $607/month or $7,280/year (source: MoneyGeek 2026 recommended contractor bundle).
This is for a small contractor with two employees, residential focus, clean claims history. Commercial contractors, larger teams, or claims history push it higher.
How to shop for coverage
Three paths:
- Direct writers (NEXT Insurance, Hiscox, Progressive Commercial). Online quote, fast bind, OK rates. Good for small, simple operations.
- Independent brokers. Local agent who shops multiple carriers for you. Better for complex situations — commercial work, mixed trades, loss history.
- Trade-association group coverage. ASHI, PHCC, ACCA, and regional associations often negotiate group rates. Check your trade association.
Get 3 quotes minimum. Premiums for identical coverage can vary 40% between carriers.
The mistakes that cost contractors real money
1. Underinsuring GL limits
$500k/$1M limits to save $40/month, then a lawsuit settles at $800k. The extra $300k out-of-pocket kills the business. $1M/$2M is the floor for a reason.
2. Misclassifying subs as not-employees
Workers comp auditors are aggressive. If your "subcontractor" works full-time for you with no other clients, using your tools, on your schedule — they're probably an employee, and you owe WC premium on their wages. When the audit catches you, it's retroactive.
3. Not reading the exclusions
Every GL policy has exclusions. Common ones that hurt contractors:
- Work in progress: damage to the thing you're working on isn't covered by standard GL. A specialty policy or installation floater is needed.
- Pollution: release of refrigerant, sewage, or chemicals often excluded unless you have a pollution endorsement.
- Professional services: design errors excluded (need E&O).
- Specific trade exclusions: roofing, hot work, excavation often excluded by cheap policies.
Read the exclusions list before you bind. If you don't understand one, ask the broker.
4. Forgetting certificate of insurance (COI) tracking
Commercial customers and property managers require up-to-date COIs on file. When your policy renews, you need to push the new COI to every client that has you on file — otherwise they take you off their approved vendor list.
5. Letting policies lapse
Any gap in coverage — even one day — can trigger requirements when you re-bind. Worse, some states suspend your contractor license for lapsed WC. Set calendar reminders 30 days before every renewal.
What to ask for when you quote
When you talk to a broker or fill out an online quote:
- Total annual payroll (for WC rating)
- Annual revenue (for GL rating)
- Trades you perform (with estimated % of each)
- States you work in
- Years in business
- Prior claims (past 5 years)
- Desired coverage limits
- Any specific client requirements (e.g., "$2M GL minimum required by commercial client")
Have this information before you call. It speeds the quote and gets you to actual pricing faster.
Once you're covered, the ongoing cost management is just tracking renewals and shopping every 2–3 years. Insurance isn't exciting, but it's the thing that makes the difference between "contractor had a bad day" and "contractor lost the business."