Here's something that surprises most people starting a contracting business in Texas: the state doesn't actually require a general contractor license. But before you celebrate, there's a catch—or rather, several catches. While Texas keeps things loose at the state level, cities and municipalities have their own rules. And whether you're legally required to carry insurance or not, you'll find it nearly impossible to land contracts without it.
If you're building a contracting business in Texas, understanding the insurance landscape isn't optional. Your clients will demand it, government contracts require it, and one lawsuit without coverage could shut you down permanently. Let's break down exactly what you need to know about Texas general contractor insurance requirements.
The Texas Licensing Puzzle: State vs. Local Requirements
Texas takes a unique approach to contractor licensing. At the state level, you can legally advertise and perform general contracting work without holding a state license. There's no statewide exam, no experience requirements, and no mandatory insurance for basic general contracting work. But this hands-off approach at the state level has created a patchwork of local regulations.
Major cities have filled the gap with their own requirements. In Dallas, you'll need to register annually and provide proof of general liability insurance, a Texas sales tax permit, and a certificate of occupancy for your business location. San Antonio requires residential building contractors to carry $500,000 in liability coverage per occurrence, while home improvement contractors need $300,000. Austin has proposed requirements including a $10,000 annual bond and liability minimums of $300,000 for bodily injury and $100,000 for property damage.
The bottom line? Check with the city or county where you plan to work. What's legal in rural Texas might get you fined in Houston. And even if your local government doesn't require insurance, your clients almost certainly will.
General Liability Insurance: Your First Line of Defense
General liability insurance protects you when someone gets hurt on your job site or when your work causes property damage. A homeowner trips over your equipment and breaks their ankle? That's a general liability claim. Your crew accidentally damages a client's expensive flooring during demolition? Also general liability.
While Texas doesn't mandate general liability coverage for all contractors, the market does. Most commercial clients won't sign a contract until they've received a Certificate of Insurance showing you carry active coverage. The typical minimum they're looking for? $1 million per occurrence with a $2 million aggregate limit. This has become the industry standard, even though it's not written into state law.
For specialty contractors regulated by the Texas Department of Licensing and Regulation (TDLR), the requirements are explicit. Electrical contractors must maintain $300,000 per occurrence, $600,000 aggregate, and $300,000 aggregate for products and completed operations. Plumbers need $300,000 in commercial liability coverage just to get licensed. HVAC contractors face similar requirements based on their license class.
The cost of general liability insurance for contractors typically ranges from $500 to $3,000 annually, depending on your revenue, number of employees, and the type of work you perform. Roofing contractors pay more than finish carpenters because the risk profile is different. It's one of your most important business expenses, but it's also one that pays for itself the first time a client's dog knocks over your ladder and it crashes through their window.
Workers' Compensation: Texas Does It Differently
Texas is the only state in the country where workers' compensation insurance isn't mandatory for most private employers. That includes construction contractors. You could run a 20-person framing crew without workers' comp coverage and not break any state laws. But here's where it gets complicated—and where many contractors make expensive mistakes.
The moment you take on a government contract or public project, workers' comp becomes mandatory. Building a new wing for a public school? Required. Renovating a city office building? Required. Working on any project with federal funding? Also required. These requirements extend to your subcontractors too, meaning you need to verify that every sub you hire carries appropriate coverage.
Even when it's not legally required, skipping workers' comp insurance is risky. Without it, injured employees can sue you directly for medical costs, lost wages, and pain and suffering. With it, workers' comp becomes their exclusive remedy—meaning they generally can't sue you even if they wanted to. Many savvy contractors carry workers' comp coverage precisely because it protects them from lawsuits, not just because clients demand it.
Major Texas cities like Houston, Dallas, Austin, and San Antonio require workers' compensation for construction contractors working on municipal projects. Many private general contractors also require it from their subs regardless of what state law says. The trend in the industry is moving toward universal workers' comp coverage, even as Texas law remains permissive.
Specialty Trade Licensing and Insurance Requirements
While general contractors get a pass on state licensing, Texas regulates the heck out of specialty trades. The Texas Department of Licensing and Regulation oversees electricians, plumbers, HVAC contractors, and several other trades. Each comes with its own licensing requirements, experience thresholds, exams, and insurance mandates.
For air conditioning and refrigeration contractors, you'll need either a Class A license (for unlimited tonnage systems) or Class B (for systems under 25 tons). Both require four years of experience, passing technical and business law exams, and maintaining continuous insurance coverage. The application fee is $115, and licenses are valid for one year.
Electrical contractors must employ a licensed master electrician and register their business with the state. The insurance requirement is specific: $300,000 per occurrence, $600,000 aggregate, and $300,000 aggregate for products and completed operations. Working without the required license where one is needed can result in Class C misdemeanor charges and administrative fees from TDLR.
The timeline to get licensed typically runs 4-8 weeks from application to receiving your license, factoring in application processing, exam scheduling, and results. Plan accordingly if you're starting a specialty trade business or adding a new service line to your existing contracting company.
How to Get Your Insurance in Place
Start by identifying exactly which coverages you need based on your trade, your location, and the types of clients you serve. If you're doing any government work, workers' comp is non-negotiable. If you're a specialty contractor, check TDLR requirements for your specific license. For everyone else, assume you'll need at least $1 million in general liability coverage to be competitive.
Shop around for quotes from insurance carriers that specialize in contractor coverage. The cheapest option isn't always the best—you want a carrier with experience handling construction claims and a reputation for actually paying them. Ask about additional coverages like tools and equipment insurance, commercial auto coverage for your work vehicles, and umbrella policies that extend your liability limits beyond the base policy.
Once you're insured, request Certificates of Insurance to provide to clients and municipalities. These are one-page documents proving you carry coverage. You'll hand them out constantly—general contractors want them from subs, clients want them before signing contracts, and permit offices sometimes require them. Keep digital copies handy so you can email them quickly when needed.
The reality of contracting in Texas is that insurance requirements come from every direction—city ordinances, client contracts, industry standards, and common sense risk management. The state may not mandate much, but the market does. Get your coverage in place before you need it, because by the time you need it, it's already too late.
