Here's what most general contractors don't realize until it's too late: one lawsuit from a job site injury can wipe out years of profits. You might think you're careful, that accidents won't happen on your watch. But construction is inherently risky, and clients, subcontractors, and property owners know it. That's why they won't sign contracts without proof of insurance—and why the right coverage is just as essential as your contractor's license.
The good news? Once you understand what coverage you actually need and why, building your insurance portfolio becomes straightforward. This guide breaks down every major policy type, what they cost in 2026, and how to avoid overpaying while staying fully protected.
General Liability Insurance: Your Foundation
General liability (GL) is non-negotiable for general contractors. It protects you when your work causes bodily injury or property damage to others. Imagine you're remodeling a kitchen and accidentally damage the homeowner's hardwood floors with a dropped tool, or a client trips over construction materials and breaks an ankle. Your GL policy covers the repair costs, medical bills, and legal defense if they sue.
Most commercial clients and project owners require minimum coverage of $1 million per occurrence and $2 million aggregate. State requirements vary widely—Rhode Island requires at least $500,000, while Arizona mandates $750,000 per occurrence for most licenses. Texas ranges from $300,000 to $1 million based on your license level. The takeaway? Carry at least $1 million per occurrence to meet most contract requirements and protect your assets.
Expect to pay more than you did a few years ago. Premium rates increased 5-15% in 2025 due to inflation and rising claim costs, and that trend continues into 2026. For a small contracting business, GL coverage typically runs $200-$400 per month depending on your trade, revenue, and claims history.
Workers' Compensation: Not Optional
If you have even one employee—whether full-time, part-time, or seasonal—workers' compensation insurance is mandatory in almost every state. This coverage pays for medical expenses and lost wages if an employee gets hurt on the job. It also protects you from lawsuits, since employees generally can't sue you for workplace injuries if you carry workers' comp.
Requirements kick in immediately in states like Minnesota and Florida once you hire your first employee. Texas is the exception—it's optional for most private employers, though you'll struggle to win commercial contracts without it. A few states (North Dakota, Ohio, Washington, and Wyoming) require you to purchase coverage through state-run programs rather than private insurers.
California passed groundbreaking legislation that will eventually require all licensed contractors to carry workers' comp even if they have no employees. Originally set for January 2026, the requirement was delayed to January 2028. However, contractors in certain trades—concrete, HVAC, asbestos abatement, roofing, and tree service—must already comply regardless of employee count.
Cost-wise, expect to pay $250-$300 per month on average, though this varies significantly based on your payroll size, the risk level of your trade, and your claims history. Roofers and framers pay more than finish carpenters because the injury risk is higher. Keep your safety record clean and your premiums stay manageable.
Business Owner's Policy (BOP): The Smart Bundle
A Business Owner's Policy bundles general liability, commercial property insurance, and business interruption coverage into one package. For small to mid-sized contractors, it's almost always more cost-effective than buying these policies separately.
The commercial property portion protects your office, warehouse, tools, and equipment if they're damaged by fire, theft, or covered weather events. Business interruption coverage replaces lost income if a covered event forces you to shut down temporarily. For general contractors in 2026, a BOP costs around $378 per month or $4,531 annually for a business with two employees. That's significantly less than purchasing GL and property coverage separately.
Keep in mind that BOP costs vary by state. Contractors in Pennsylvania pay around $439 per month, while those in Alaska pay closer to $325 for similar coverage. Location, revenue, and the value of your business property all factor into your premium.
Builders Risk and Tools & Equipment Coverage
Builders risk insurance protects structures under construction from damage due to fire, theft, vandalism, and certain weather events. It covers the building materials, fixtures, and supplies—whether they're on-site, off-site, or in transit. This policy is usually purchased on a per-project basis and terminates once construction is complete or the building becomes operational.
Here's the catch: builders risk doesn't cover your tools and equipment. If your $5,000 table saw gets stolen from a job site, builders risk won't reimburse you. For that, you need contractors equipment insurance or inland marine coverage. This protects mobile equipment and tools you own, rent, lease, or borrow—hand tools, power tools, scaffolding, and machinery that move from site to site.
Tools and equipment insurance typically costs around $34 per month for most contractors, though this depends on the total value of your gear. Given how easy it is for tools to walk off job sites or get damaged, it's a smart investment. Also, make sure your coverage limits keep pace with replacement costs—equipment values have risen sharply due to inflation, so what you set in 2024 may be inadequate in 2026.
Additional Coverages to Consider
Commercial auto insurance is required if you or your employees drive vehicles for work. This includes pickup trucks, vans, and any vehicle used to transport tools or materials. It covers liability and physical damage if you're in an accident.
Professional liability insurance (errors and omissions) protects you if a client alleges your work was defective or didn't meet contract specifications. This is especially important for design-build contractors or those offering consulting services.
Umbrella insurance provides extra liability coverage above your underlying policies. If you're working on high-value projects or face significant risk exposure, an umbrella policy gives you an additional layer of protection for relatively low cost.
How to Get the Right Coverage Without Overpaying
Start by understanding your state's minimum requirements and what your clients demand. Most commercial contracts specify coverage amounts, so review those carefully before shopping for policies. Then bundle wherever possible—buying a BOP instead of separate GL and property policies can save you hundreds per month.
Get quotes from multiple insurers who specialize in contractor coverage. Rates vary significantly between carriers, and someone who focuses on construction insurance will understand your risks better than a general business insurer. Maintain a strong safety record, invest in training, and document everything—insurers reward contractors who demonstrate risk management.
Finally, review your coverage annually. Your business grows, equipment values change, and insurance requirements evolve. What protected you adequately last year may leave you exposed today. A comprehensive insurance portfolio isn't just a contract requirement—it's what lets you sleep at night knowing that one bad day on the job site won't destroy everything you've built.
