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Breaking Down the Average Costs of Contractors Insurance

Discover the average cost of contractors insurance and tips to save. Learn about coverage, factors, and industry-specific risks. Read now!


The average cost of contractors insurance is a crucial detail for any contractor looking to protect their business. In a nutshell, this type of insurance can vary widely depending on several factors, but here’s a quick breakdown:

  • General liability insurance: $1,090 per year
  • Workers’ compensation: $3,175 per year
  • Commercial auto insurance: $1,990 per year
  • Contractor’s tools and equipment insurance: $170 per year
  • Errors and omission insurance: $520 per year

Contractors insurance is essential for any job, whether you are remodeling a kitchen or building a patio. It protects your business from risks like accidents, property damage, lawsuits, and lost or stolen tools. This type of insurance helps cover costs that could otherwise cripple your business.

Several factors affect the cost of contractors insurance. These include the type of coverage you need, the number of employees you have, your prior claims history, and other business-related factors like your location and the value of your business assets.

We will dive deeper into these topics and help you understand how to manage these costs effectively.

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Understanding the Basics of Contractors Insurance

Contractors insurance is essential for protecting your business from various risks and liabilities. Whether you’re a general contractor or a subcontractor, having the right insurance coverage can save you from financial disasters. Let’s break down the key types, coverage, and essentials of contractors insurance.

Types of Contractors Insurance

There are several types of insurance policies that contractors should consider:

  • General Liability Insurance: Covers property damage and bodily injuries accidentally caused to others.
  • Workers’ Compensation Insurance: Covers medical bills and lost wages for employees injured on the job.
  • Builder’s Risk Insurance: Protects construction projects from damage due to events like fires, theft, and natural disasters.
  • Professional Liability Insurance: Also known as errors and omissions (E&O) insurance, it covers claims of professional mistakes or negligence.
  • Commercial Auto Insurance: Covers vehicles owned by your business.
  • Tools and Equipment Insurance: Protects your tools and equipment from theft or damage.

Coverage Essentials

A good contractor insurance policy should include the following essential coverages:

  1. Business Liability Insurance: This is the foundation of a small business insurance policy. It covers property damage and bodily injuries accidentally caused to others (not including your employees). For example, if your tree service causes a heavy branch to land on a client’s roof, you can tap your general liability insurance to pay for repairs.

  2. Commercial Property Insurance: This covers your business’s physical location and business equipment if they’re damaged due to a problem covered by your policy, such as a tornado. It covers both leased and owned equipment, including items like office furniture, tools, inventory, supplies, computers, business records, and valuable papers.

  3. Business Interruption Insurance: If you have to temporarily close your business due to a problem covered by your policy, like a theft or fire, business interruption insurance replaces lost income. Also known as “business income insurance,” this covers problems such as wind damage, lost earnings, money lost due to damaged merchandise, and the cost of moving to a new location temporarily.

Essentials to Keep in Mind

Why You Need It: Contractors insurance is crucial for protecting your business from work-related accidents. For example, if an employee accidentally damages a client’s property or if your tools are stolen, the right insurance can cover the costs and prevent significant financial loss.

What’s Not Covered: There are several exclusions to be aware of, such as floods and earthquakes, which require separate policies. Other exclusions include radioactive fallouts, war, infectious diseases, government seizures, wrongful termination (unless you have employment practices liability insurance), and intentional or fraudulent acts.

Additional Coverage: While a Business Owners Policy (BOP) provides a solid foundation, you might need additional coverage depending on your business needs. For instance, builder’s risk insurance covers property and construction materials while you’re working on a project.

Real-World Example

Let’s look at a real-world scenario to understand the importance of having the right coverage. Imagine you’re working on a client’s property, and despite all safety measures, a piece of equipment malfunctions and causes damage. This happened to John’s Construction Co. in San Diego. An employee accidentally damaged an expensive antique vase during a home renovation project. Thanks to their comprehensive general contractor insurance policy, the insurance company assessed the claim and compensated the homeowner for the loss.

This example underscores why property damage coverage is critical. It not only protects the contractor from significant out-of-pocket expenses but also helps maintain good client relationships.

Understanding the basics of contractors insurance helps you choose the right coverage to protect your business. Next, we’ll delve into the average costs of contractors insurance and how to manage these costs effectively.

Average Cost of Contractors Insurance

General Liability Insurance Costs

General liability insurance is crucial for contractors. It covers legal fees and damages if someone sues your business for property damage or injury.

Median Cost: General contractors typically pay around $142 per month or $1,700 annually for this coverage.

Policy Limits: A standard policy usually includes a limit of $1 million per occurrence and $2 million aggregate.

Deductibles: The deductible is generally $1,000. This means you’ll pay the first $1,000 of any claim out of pocket.

Factors like your business size, the amount of foot traffic, and whether you use subcontractors can affect these costs. For example, high foot traffic increases risk, leading to higher premiums.

Workers’ Compensation Insurance Costs

Workers’ compensation insurance covers medical expenses and lost wages if your employees get injured on the job. Most states mandate this coverage.

Average Premiums: General contractors pay an average of $318 per month or $3,811 annually for workers’ comp.

State Variations: Costs can vary significantly by state. Some states have higher rates due to stricter regulations or higher risk levels.

Employer Liability: Most policies include employer’s liability insurance, which covers lawsuits related to workplace injuries. This liability coverage often has no cap, but it’s subject to state laws.

The number of employees and the type of work they do are key factors in calculating workers’ comp costs. More employees and riskier tasks lead to higher premiums.

Commercial Auto Insurance Costs

If you use vehicles for business purposes, commercial auto insurance is essential. It covers accidents involving your business vehicles.

Monthly Premiums: General contractors pay around $180 per month or $2,157 annually for commercial auto insurance.

Coverage Limits: A typical policy provides a limit of $1 million.

State Requirements: Most states require commercial auto insurance for business-owned vehicles. For personal, rented, or leased vehicles used for business, hired and non-owned auto insurance is a better fit.

Factors affecting costs include the value of the vehicle and the driving records of those who use it. Safer driving records and lower vehicle values can reduce premiums.

Understanding these average costs helps you budget for essential insurance coverage. Next, we’ll explore the factors influencing the cost of contractors insurance, including location, business size, and industry risks.

Factors Influencing the Cost of Contractors Insurance

When it comes to contractors insurance, several factors can significantly impact your premiums. Understanding these factors can help you manage and potentially lower your insurance costs.

Impact of Business Location on Insurance Costs

Location matters. Where your business operates can influence your insurance costs. For example, if your business is in an area prone to natural disasters like hurricanes or earthquakes, expect higher premiums. Similarly, high-crime areas can also lead to increased costs due to the higher risk of theft or vandalism.

State regulations play a role too. Different states have different insurance requirements and regulations that can affect your premiums. For example, California requires contractors to carry workers’ compensation and general liability insurance, which can increase costs.

Role of Business Size and Foot Traffic

Bigger businesses pay more. Larger businesses with more employees and higher payrolls generally face higher insurance premiums. This is particularly true for workers’ compensation insurance, where premiums are directly tied to payroll size.

Foot traffic impacts risk. If your business has a lot of customer interaction, like a retail store or a busy office, your general liability insurance may cost more. More foot traffic means a higher chance of accidents and claims.

Industry-Specific Risks and Their Impact

Different industries, different risks. The type of work you do significantly impacts your insurance costs. High-risk professions like construction, plumbing, and electrical work typically have higher premiums due to the increased likelihood of accidents and claims.

  • Construction: Building structures involves various risks, from equipment accidents to structural failures. Hence, construction businesses often face higher insurance costs.
  • Plumbing: Plumbers deal with water systems, which can lead to significant property damage if things go wrong. This increases the risk and the cost of insurance.
  • Electrical work: Electricians face risks like electrical fires and shocks, leading to higher premiums.

Understanding these factors can help you better navigate your insurance options and find ways to save on premiums. For example, implementing safety programs and employee training can reduce the likelihood of accidents, potentially lowering your insurance costs.

Next, we’ll dive into practical tips for saving on contractors insurance, including comparing quotes, bundling policies, and implementing effective risk management strategies.

Cost-Saving Tips for Contractors Insurance

Saving on contractors insurance doesn’t have to be complicated. Here are some practical tips to help you reduce costs while ensuring you have the necessary coverage.

Comparing Insurance Quotes

Shop Around: Just like you wouldn’t buy the first tool you see, don’t settle for the first insurance quote you get. Different insurers offer varying rates based on factors like your business size, location, and industry risks.

Use Online Tools: Platforms allow you to input your details once and receive multiple quotes from different insurers. This makes comparing options quick and easy.

Broker Consultations: Speaking with an insurance broker can provide tailored advice and help you find the best deals. Brokers often have access to multiple insurers and can guide you through the complexities of different policies.

Benefits of Bundling Policies

Business Owner’s Policy (BOP): A BOP bundles general liability insurance with commercial property insurance, often at a discount. This is typically cheaper than purchasing these coverages separately and simplifies your insurance management.

Ask About Multi-Policy Discounts: When discussing options with insurance agents, inquire about discounts for bundling various types of coverage. For example, combining general liability, commercial auto, and workers’ compensation insurance can lead to significant savings.

Implementing Effective Risk Management

Safety Protocols: Implementing safety measures can reduce the likelihood of accidents, which in turn can lower your insurance premiums. Conduct regular safety training and ensure all employees follow safety protocols.

Employee Training: Regular training sessions help employees stay updated on safety practices and reduce the risk of workplace injuries. This proactive approach can make your business more attractive to insurers, potentially leading to lower premiums.

Regular Audits: Conducting regular audits of your safety practices and business operations can help identify areas for improvement. This not only enhances safety but also demonstrates to insurers that you are committed to reducing risks.

By applying these strategies, you can effectively manage your contractor insurance costs without sacrificing the protection your business needs. Each method provides a pathway to not only understand the varying prices and what influences them but also to potentially secure a deal that aligns with your budget constraints and coverage requirements.

Next, we’ll address some common questions about contractors insurance to help you better understand your policy options and make informed decisions.

Frequently Asked Questions about Contractors Insurance

What is the minimum coverage needed for general contractors?

In most states, general contractors need at least general liability insurance. This coverage protects against third-party claims of property damage or bodily injury. For example, if a ladder falls and breaks a homeowner’s window, general liability insurance helps cover the repair costs.

In addition, many states require workers’ compensation insurance if you have employees. This policy covers medical bills and lost wages for work-related injuries.

In California, for instance, contractors must also have a $25,000 Contractor License Bond to ensure financial protection for clients.

For commercial vehicles, contractors often need commercial auto insurance. This covers accidents involving business vehicles. In California, the minimum liability coverage is:

  • $15,000 for injury/death to one person
  • $30,000 for injury/death to more than one person
  • $5,000 for property damage

Having these coverages not only protects your business but also shows clients that you are responsible and prepared for unexpected events.

How do policy limits affect the insurance premiums?

Policy limits significantly impact the cost of contractors insurance. The per-occurrence limit is the maximum amount your insurer will pay for a single claim, while the aggregate limit is the total amount the insurer will pay during the policy period, usually one year.

For instance, most independent contractors choose a general liability policy with a $1 million per-occurrence limit and a $2 million aggregate limit. The higher these limits, the more you will pay in premiums.


  • General Liability Insurance: Median cost is $1,090 per year for a $1 million per occurrence limit.
  • Errors and Omissions Insurance: Median cost is $520 per year for a $300,000 per occurrence limit.

Choosing higher limits means your insurance company will cover more in the event of a claim, but this also increases your premium. Conversely, opting for higher deductibles can lower your premiums, but you’ll need to pay more out-of-pocket if you file a claim.

Can subcontractors affect my insurance costs?

Yes, subcontractors can affect your insurance costs. When you hire subcontractors, your insurance company considers them part of your risk pool. If a subcontractor causes damage or injury, your policy might be responsible for the claim.

To manage this risk, ensure your subcontractors have their own insurance. Require them to provide a certificate of insurance before starting work. This certificate proves they have coverage and can help protect you from potential claims.

Additionally, accurately classifying your workers, including subcontractors, can help manage your costs. Misclassification can lead to higher premiums or even denied claims.

Tip: Consult with your insurance agent to ensure all workers are properly classified and covered.

By understanding these FAQs, you can better navigate your contractor insurance needs and make informed decisions to protect your business.


Navigating contractor insurance might seem daunting, but it’s essential for protecting your business. From general liability to workers’ compensation, understanding the average cost of contractors insurance helps you make informed decisions.


Contractor insurance is crucial for covering unexpected events like accidents, property damage, and injuries. The average cost of contractors insurance varies based on several factors, including coverage needs, number of employees, and prior claims history. For example, general liability insurance typically costs around $1,090 per year, while workers’ compensation can be as high as $3,175 annually. Understanding these costs ensures you’re adequately protected without overspending.

Next Steps

  1. Review Your Current Coverage: Start by evaluating your existing insurance policies. Are there any gaps in coverage that leave you exposed? Have there been any changes in your business that might require additional coverage?

  2. Consult with Experts: At PIA Insurance Agency, we’re here to help. Our team of experts can analyze your specific situation and tailor a coverage plan that fits your unique needs. We believe in not just selling policies, but in forming partnerships that help your business thrive.

  3. Stay Informed: The world of contracting and insurance is always evolving. Staying informed about changes in regulations and new risks can help you adjust your coverage as needed and avoid potential pitfalls.

PIA Insurance Agency

At PIA Insurance Agency, we understand the unique challenges contractors face. We’re committed to helping you navigate these complexities. Whether you’re looking to review your current policy, address specific risk concerns, or simply have questions about contractor insurance, we’re here for you.

Our personalized approach ensures you get the right coverage tailored to your needs. With our ongoing support, you can focus on growing your business while we handle the risk management.

Protect what you’ve worked so hard to build. Visit our Comprehensive Review of Construction Liability Insurance Providers to start on the path to better coverage today.

Choosing the right contractor insurance is not just about protecting your business—it’s about ensuring its future. Let PIA Insurance Agency guide you through every step of the way.

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