Starting a general contracting business is exciting—you're finally working for yourself, bidding on projects, and building something real. But here's what catches most new contractors off guard: you can't even submit your first bid without the right insurance in place. Clients won't hire you. Project owners won't let you on site. And in many states, you can't even get your contractor's license without proof of coverage.
The insurance landscape for general contractors changed significantly in 2025, with new requirements taking effect and premiums rising 5-15% across most markets. This guide walks you through exactly what coverage you need from day one, when to add more protection as you grow, and the common mistakes that cost contractors thousands—or tank their businesses entirely.
Day One Coverage: What You Need Before Your First Job
Before you take on your first project, you absolutely must have general liability insurance. This isn't optional. Virtually every commercial project owner requires at minimum $1 million per occurrence and $2 million aggregate coverage. Residential clients increasingly demand it too. Your premium will typically run 0.9% to 2.2% of your annual revenue—so if you're projecting $200,000 in first-year revenue, expect to pay $1,800 to $4,400 annually.
General liability covers the big stuff that can sink a new business: if your crew accidentally damages a client's property, if someone trips over your equipment and gets hurt, or if your work causes unexpected damage after completion. Without it, one lawsuit could wipe out everything you've built before you've even gotten started.
If you're operating solo at first, you might think you can skip workers' compensation insurance. Not so fast. As of 2025, workers' comp has become mandatory for all licensed general contractors in many states, regardless of employee count. Even if your state still allows sole proprietor exemptions, you'll likely need it to secure your contractor's license. The minimum annual premium typically starts around $750.
Here's something that surprises new contractors: your personal auto insurance doesn't cover business use. The moment you load tools into your truck and drive to a job site, you're technically operating without coverage if you're on a personal policy. Commercial auto insurance fixes this gap. If you're using any vehicle for work—even your personal pickup—switch to commercial coverage before day one.
Growth Triggers: When to Add More Coverage
Your insurance needs evolve as your business grows, and missing these triggers is one of the most common—and expensive—mistakes contractors make. The moment you hire your first employee, workers' compensation goes from optional to mandatory in most states. In California, you need it even if you have just one employee. Pennsylvania will hit you with $2,500 in daily fines plus potential jail time for operating without coverage. Don't wait.
When you start taking on larger projects, your general liability limits need to increase proportionally. If you're bidding jobs worth $500,000 or more, that original $1 million policy won't cut it anymore. Many general contractors carry $2 million or even $5 million in coverage once they're working on commercial builds. Review your limits every time your revenue jumps significantly—outgrowing your policy leaves you dangerously exposed.
Adding design-build services or offering construction consulting? You need professional liability insurance (also called errors and omissions). This covers mistakes in your professional advice or design work—gaps that general liability explicitly excludes. If you recommend a structural approach that fails or provide consultation that leads to costly errors, professional liability protects you from those claims.
Builder's risk insurance becomes important when you're managing larger construction projects. This coverage protects the project itself while it's under construction—if there's a fire, theft, or vandalism on the job site, builder's risk covers the materials and work in progress. For residential remodels, this might be optional. For commercial builds worth hundreds of thousands, it's essential.
Costly Mistakes That Sink Contractor Businesses
The biggest insurance mistake contractors make? Not verifying subcontractor coverage. If you hire a subcontractor who doesn't carry workers' comp and their employee gets hurt on your job, guess who's liable? You are. This single oversight can cost you tens of thousands in medical bills and legal fees. Before any subcontractor sets foot on your job site, get a current certificate of insurance showing general liability and workers' comp coverage.
Another common trap: buying the bare minimum coverage to save money. Yes, insurance premiums rose in 2025, and every dollar counts when you're starting out. But skimping on coverage is penny-wise and pound-foolish. Construction accidents lead to massive lawsuits that easily exceed low liability limits. One serious injury claim can blow through a minimal policy in days, leaving you personally on the hook for the rest.
Misclassifying workers is another expensive mistake. Insurance premiums are based partly on how you classify employees and subcontractors. Get this wrong, and you'll either pay too much or—worse—end up underinsured when you need coverage most. If you're not sure whether someone should be classified as an employee or independent contractor, talk to your insurance agent and accountant before you make the call.
Many contractors also fail to understand policy exclusions. You might think you're fully covered, only to discover after a claim that your specific situation falls into an excluded category. Read your policy—actually read it, don't just skim. Know what's covered and what isn't. If you're unclear about exclusions, ask your agent to explain them in plain English before you sign.
Getting Started: Your Action Plan
Start by getting quotes for general liability insurance with at least $1 million per occurrence coverage. Shop around—premiums vary significantly between carriers, and some specialize in contractor coverage with better rates and terms. Many online platforms now offer instant quotes that cut through traditional paperwork, getting you covered in minutes instead of days.
Set calendar reminders to review your coverage every six months, especially during your first two years in business. As your revenue grows and you take on bigger projects, your insurance needs will change quickly. Don't wait for your annual renewal to realize you've outgrown your coverage—by then, you might already be exposed.
Build relationships with an insurance agent who specializes in contractor coverage. They can guide you through the unique requirements in your state, help you understand licensing requirements, and advise you on when to add coverage as your business evolves. The right agent becomes a valuable partner in protecting your growing business.
Insurance isn't the most exciting part of starting a general contracting business, but it's absolutely foundational. Get it right from day one, update it as you grow, and avoid the common mistakes that derail other contractors. Your business—and your financial future—depends on it.
