Here's what most general contractors don't realize until it's too late: having insurance isn't the same as having the right insurance. You might carry a policy that satisfies your license requirements but leaves you exposed when a subcontractor's mistake costs you a lawsuit, or when a client claims your project advice led to structural problems. This checklist breaks down exactly what coverage you need, what's optional but smart, and when to add each type as your business grows.
Think of this as your insurance roadmap. Whether you're just getting licensed or reviewing your existing coverage, this guide covers the essentials you can't skip, the add-ons that make sense for specific situations, and the annual review items that prevent nasty surprises when you need to file a claim.
Essential Coverage: What Every General Contractor Must Have
These four coverages form the foundation of your insurance program. Without them, you can't legally operate in most states, and you won't qualify for commercial projects.
General liability insurance is your first line of defense. It covers bodily injury, property damage, and personal injury claims that arise from your work. The industry standard is $1 million per occurrence with $2 million aggregate limits—97% of contractors carry these limits because virtually every commercial project requires them. Expect to pay around $142 per month, though costs vary based on your revenue, location, and claim history. This isn't optional. It's the baseline that clients, lenders, and licensing boards expect.
Workers' compensation insurance changed dramatically in 2025. It's now mandatory for all licensed general contractors regardless of employee count—even if you're a sole proprietor. Previous exemptions disappeared, and the minimum annual premium runs about $750 across most states. If you have employees, expect to pay closer to $318 per month. This coverage protects your workers if they're injured on the job and shields you from lawsuits related to workplace injuries.
Commercial auto insurance covers your vehicles when you're hauling materials, transporting equipment, or driving to job sites. Personal auto policies won't cover business use, and if you're in an accident during work hours, you could be left paying out of pocket. If you use vehicles for your contracting business, this coverage is non-negotiable.
Commercial property insurance protects your physical assets—your office, storage facilities, equipment, and inventory. If a fire destroys your shop or theft wipes out your tool inventory, this coverage pays to replace what you lost. For contractors operating from multiple locations or storing expensive equipment, this protection prevents a single incident from shutting down your entire operation.
Smart Add-Ons: Optional Coverages That Protect Against Specific Risks
Beyond the essentials, these coverages address specific exposures that many contractors face. Whether you need them depends on the type of work you do, the clients you serve, and how you structure your projects.
Builder's risk insurance (also called course of construction coverage) protects structures, materials, and equipment during active construction. If a storm damages a partially built structure or thieves steal materials from your job site, this policy covers the loss. Most clients require this coverage for larger projects, and it typically costs a small percentage of the project value—usually well worth it for projects exceeding $100,000.
Professional liability insurance (errors and omissions) becomes essential if you provide design services, project management advice, or consulting. Here's why: general liability explicitly excludes coverage for professional mistakes. If you recommend a design that causes structural issues, or your project management leads to cost overruns, this coverage handles the resulting claims. Don't assume your general liability has you covered—it doesn't.
Umbrella insurance adds an extra layer of liability protection above your primary policies, typically $1 million or more. With jury awards rising dramatically—the so-called "nuclear verdicts" that can exceed policy limits—umbrella coverage prevents a single lawsuit from bankrupting your business. It usually costs $300 to $500 annually for an additional million in coverage, making it one of the most cost-effective protections available.
Equipment and tools coverage protects your machinery, tools, and equipment whether they're in your shop, in transit, or at a job site. Tools and equipment insurance typically runs about $34 per month for most contractors. If you're hauling equipment between multiple job sites, consider inland marine coverage, which extends protection to items while they're being transported.
Completed operations coverage addresses claims that arise after you finish a project. If a deck you built two years ago collapses, this coverage handles the lawsuit. Standard practice is extending this coverage for three years beyond project completion, ensuring you're protected long after you've moved on to other work.
When to Add Coverage: Timing Your Insurance Purchases
Knowing what coverage you need is one thing. Knowing when to buy it is another. Here's how to time your insurance purchases as your business evolves.
Add professional liability insurance before you take on any design-build work or start offering consulting services. Don't wait until after you sign a contract that includes professional services—get this coverage in place beforehand. The same goes for builder's risk: secure it before construction starts, not after materials arrive on site.
Consider umbrella coverage once your annual revenue exceeds $500,000 or when you start taking on larger commercial projects. At this point, your exposure increases significantly, and the relatively low cost of umbrella insurance makes it a smart investment. Similarly, add pollution liability coverage before you take on projects involving excavation, demolition, or work near environmental hazards.
When you start hiring subcontractors regularly, review your policy for a subcontractor warranty endorsement. This endorsement ensures your carrier covers you if a subcontractor causes damage on your project. Without it, you might be left holding the bag when a sub's mistake leads to a claim. Not all policies include robust subcontractor warranties, and sometimes cheaper premiums mean more restrictive endorsements.
Annual Review Items: Keeping Your Coverage Current
Insurance isn't a set-it-and-forget-it purchase. Costs change, your business grows, and coverage that made sense last year might leave you exposed today. Schedule an annual review to address these key items.
Update your equipment values annually. Replacement costs rise significantly year over year, and a contractor who set builders' risk and equipment values in 2024 may find those limits woefully inadequate after a major loss in 2026. Inflation affects construction costs more than most industries, so your coverage limits need to keep pace.
Review your liability limits each year, especially if you're taking on larger projects or expanding into new types of work. What seemed like adequate coverage when you were doing $300,000 in annual revenue may not be sufficient at $1 million in revenue. Many contractors find that their insurance costs between 40% to 80% more once they carry proper coverage with adequate limits—but that's far less expensive than facing a lawsuit without sufficient protection.
Examine your deductibles and consider whether adjusting them makes sense. Choosing a higher deductible reduces your ongoing premiums, which can free up cash flow if you're willing to absorb more of the costs for smaller claims. Just make sure you have enough reserves to cover that deductible if something happens.
Finally, assess whether your current policies still match the work you're doing. If you've added new services—like offering design advice or expanding into renovations—make sure your coverage reflects those changes. The worst time to discover a coverage gap is when you're filing a claim.
How to Get Started with Your Insurance Checklist
Start by pulling out your current policies and comparing them against this checklist. Do you have the four essential coverages in place? Are your liability limits at least $1 million per occurrence? Does your general liability policy include a strong subcontractor warranty endorsement?
Next, identify gaps based on the type of work you do. If you offer design services but don't have professional liability insurance, that's your first priority. If you're working on larger projects without builder's risk coverage, add that before your next big job starts.
Finally, schedule time with an insurance agent who specializes in contractor coverage. They can review your specific situation, recommend appropriate limits, and help you understand which optional coverages make sense for your business. The cost of proper insurance is always less than the cost of being underinsured when something goes wrong.
