What Is Contractor Insurance?

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There are many types of independent contractors, and they all need insurance. Professionals ranging from attorneys and interior designers to roofers and construction company owners need contractor insurance to protect their business from financial losses that can result from work-related accidents and injuries, work that did not meet standards, reputational harm, materials damaged or lost during transport and more.

Here is a look at how business insurance works and which coverages you should consider in protecting your businesses, how much it will cost you and more.

How Does Contractor Insurance Work?

The right package of commercial insurance coverages usually includes general liability coverage, which will protect your business against lawsuits and injuries, property damage and reputational harm.

Commercial property insurance protects your work equipment and professional liability insurance, also called errors and omission insurance, protects you against losses if the client claims financial losses due to subpar work. Inland marine coverage protects you against losses while necessary materials are in transport.

Commercial liability insurance may be required by the client before you begin work, and workers compensation is a legal requirement if you employ other workers. Many contractors buy a business owner’s policy (BOP), which bundles general liability coverage with property insurance as well as business interruption coverage, at a lower cost.

Who Needs Contractor Insurance?

Most businesses need general liability insurance at minimum, and independent contractors may even be required to show proof of insurance to begin work. This is only a partial list of common professions that require contractor insurance:

  • Medical Professionals
  • Legal Professionals
  • Accountants
  • Interior Designers
  • Consultants
  • Realtors
  • Fitness and Yoga Instructors
  • Graphic Designers
  • Home Renovation Contractor
  • Siding Installation Contractor
  • Paving and Asphalt Contractor
  • Insulation Contractor
  • Solar Contractor
  • Roofer
  • Fence Installation Contractor
  • Lawn Care Contractor or Landscaper
  • Snow Plowing Contractor
  • Painters
  • Drywall Contractor
  • Concrete Contractor
  • Flooring Installer
  • Excavation Contractor
  • HVAC Contractor
  • Debris Removal Contractor
  • Mason
  • Electrician
  • Carpenter
  • Welder
  • Plumber
  • Appliance Technician
  • Handyman
  • General Contractor
  • Jack of All Trades

The average contractor insurance policy costs about $600 a month, but this price ranges greatly per business.

What Does Contractor Insurance Cover?

Insurance Type


General Liability Insurance

Covers three types of injury to a third party: (1) bodily injury and property damage (2) personal and advertising injury and (3) medical payments coverage.

  • If you drop equipment on a client's foot by accident, you are covered.
  • If you accidentally shatter a client’s vase you are covered.
  • If your worker is heard making nasty comments about the client, and you are sued, you are covered.

Commercial Property Insurance

Your equipment, tools, supplies and materials are covered, as in these examples:

  • Heavy snow destroys your building materials
  • Fire destroys the siding you were supposed to install

Personal Liability (Errors and Omissions)

If the work you did did not meet requirements and has to be redone, you are covered. You are also covered against lawsuits. For instance if:

  • You did not meet deadlines, and the work is late.
  • Your professional negligence was the cause of mistakes
  • There was a breach of contract

Inland Marine Insurance

Your business property is protected while in transit. For instance, if

  • Your tools are stolen out of your truck
  • Construction materials are stolen during delivery from a third party

Workers Compensation

Required by law if you employ workers. It covers the following if they happen due to work or on the job:

  • Illness
  • injury

Commercial Auto Insurance

Commercial vehicles will not be covered by a personal car insurance policy and vice versa. You will not be covered in an accident unless your vehicles are covered by commercial auto insurance.

Tools and Equipment Coverage

Your business property is expensive, especially tools used to perform your job. You are covered for equipment in these cases:

  • Breakage or damage while on the job
  • Lost equipment and tools
  • Vandalized or stolen equipment and tools
  • Damage to leased or rented equipment and tools.

Does NOT cover:

  1. Boats, planes, drones, and similar equipment
  2. Property rented or leased to others (unless it is otherwise included in the policy)
  3. Property loaned to others (unless it is otherwise included in the policy)
  4. Underground mining operations (anything damaged or stolen while underground)
  5. Vehicles like tractors and trailers, which should be covered by commercial auto insurance

Business Interruption Coverage

If your business cannot operate due to a covered loss, you will be reimbursed for lost income.

Business Owners Policy

This policy bundles general liability insurance with commercial property insurance and business interruption coverage for a lower rate than buying each separately. You’re covered for injuries and covered perils that destroy your business property as well as lost work due to losses.

Excess Liability Insurance

An excess liability insurance policy covers you in the case of a lawsuit and other legal expenses when a primary liability policy is maxed out.

Are you a Contractor Looking for Insurance?

How Much Does Contractor Insurance Cost?

According to Insureon, the average contractor insurance policy costs about $600 a month, but this price ranges greatly, according to several factors. More than anything, a contract insurance policy’s price depends on the industry you are contracted to work in.

Building a five million dollar home will require more costly insurance coverage than doing interior design in that home, even though both may require certain types of business insurance. Also, as an example: an electrical contractor who needs $15,000 in personal property protection to cover expensive tools will pay more than an electrical contractor who only needs $5,000 in coverage.

The cost of your policy depends on:

  • The types of project you’re doing
  • The types of coverage you select and limits for each type of coverage
  • The location of the project
  • The number and types of business vehicles used
  • The number of workers you employ
  • The cost of tools and equipment that may need to be covered
  • The risks associated with injuries

Insurance Type

Median Cost 

General Liability Insurance

$80-$100 a month

Commercial Property Insurance

Varies greatly depending on the contractor’s line of work

Personal Liability (Errors and Omissions)

$90 per month

Inland Marine Insurance

$300 to well over $10,000 a year

Workers Compensation

Varies greatly. For example in California, rates are $1.61 per $100 in covered payroll.

Commercial Auto Insurance

For a policy limit of $1 million, the median cost of commercial auto insurance is roughly $150 per month

Tools and Equipment Coverage

$20 or less per month

Business Interruption Coverage

Varies greatly

Business Owners Policy

Varies greatly

Excess Liability Insurance

Varies greatly

*Based on rates found online

How To Get Contractor Insurance

Many insurance companies that offer home and auto insurance offer commercial insurance. Finding a reliable agent will be key, and you will preferably work with someone who is knowledgeable about the type of work you do.

When buying contractor insurance, you will need to share your business location and industry type, owner information and claims history, details of the business operations and your gross annual sales to determine your exposure to various risks. If you have employees, you will need to provide the number of employees, annual payroll and subcontractor costs for the insurance assessment.

When receiving a business insurance quote as a contractor, be ready to discuss your claim history, such as the number of claims in the past five years, date of claims and amount paid to settle each claim. The more claims you’ve filed, the more expensive your policy will be.

The best way to get the best deal on a policy is to compare commercial insurance quotes. You answer all the pertinent questions once and receive quotes from several agents representing various insurance companies. Otherwise, you will be comparing apples to oranges if you cannot gather several quotes on the same day, because rates change daily. Also, you’ll want the choice between a small local carrier and the big national carriers to see what works best for you and which price feels more manageable.

Most businesses need general liability insurance at minimum, and independent contractors may even be required to show proof of insurance to begin work.

Contractor Insurance FAQs

What kind of insurance should a contractor have?

Which types of commercial insurance you should have depends on your business. A general liability insurance is something every independent contractor should have. Also, consider whether or not you use your vehicle for work purposes, which requires commercial auto insurance. Do you have employees? Expensive equipment? There’s insurance for many different needs.

Are contractors required to have insurance?

Some clients may require proof of insurance or proof of a surety bond at minimum to protect their own interests, in case something does go wrong with the project or service. However, whether or not it’s required matters very little when it comes to safeguarding your business.

Do I need business insurance as a contractor?

Most business owners need business insurance, even when it’s not required, to shoulder the weight of heavy losses that would bankrupt the business otherwise.

Key Takeaways

  • Most independent contractors need general liability insurance at minimum.
  • Workers compensation is required by law if you have employees.
  • Your personal auto insurance will not cover a vehicle that is used for business purposes.

Whether you know which types of coverage you need for your business, or if you need to discuss your options with a knowledgeable insurance agent, SmartFinancial can help you get the help you need and several free insurance quotes. Just fill out a short questionnaire about your business to begin. Start by entering your zip code below!

Get a Free Commercial Insurance Quote.