If you run a contracting business, “contractors insurance” is rarely a single policy. It’s a mix of coverages built around the way you actually work. When most contractors call asking for it, they’re really looking for general liability, but a complete program can also include commercial property, commercial auto, workers’ compensation, and an umbrella policy that sits on top of everything else.
General liability is the foundation. It protects you against claims of negligence that arise in the course of your work. The classic example is leaving a ladder out on a job; if someone trips over it, falls, and sues, that’s exactly the kind of claim general liability is designed to handle. It typically includes a premises liability component along with coverage for ongoing and completed operations.
These policies are occurrence-based. That means you have a limit that responds to each occurrence, plus a general aggregate – the most the policy will pay in a single year. Most contractors carry a one or two-million-dollar limit, often because a township requires it or because a general contractor hiring them as a subcontractor asks them to.
In Pennsylvania, if you hold a home improvement license you are generally expected to register through the Pennsylvania Attorney General’s home improvement contractor website and show proof of insurance. Not everyone does. Plenty of contractors have operated for years without coverage simply because they were never required to.
That is changing. The state is increasingly cracking down: if you have a federal ID number or a formed LLC, you’re more likely to receive a letter reminding you that, as a registered entity, you’re expected to carry general liability and register your business.
Cost depends heavily on what type of contracting you do. A one-person operation such as a handyman handling small repairs, might pay under $1,000 a year for general liability, because pricing is tied to a very small payroll. A roofing or demolition contractor, by contrast, carries far greater liability exposure, and premiums climb accordingly.
Most contractor policies are payroll-based, though some carriers (particularly excess and surplus lines markets) will rate on sales instead. The size of the business, annual payroll, annual sales and subcontractor costs all feed into the final number.
Being insured and being bonded are not the same thing. A bonded contractor has to demonstrate their financials and purchase a bond that protects the job contract itself. If a contractor takes your deposit and then abandons the job, you collect from the bond – not from their liability policy. A general liability policy does not provide indemnification for an unfinished contract, so the bond is what fills that gap. Bonds are usually placed through carriers that specialize in them.
A standalone general liability policy is exactly that: liability and nothing more. A contractor (or “package”) policy lets you combine general liability with commercial property on a single policy. You can endorse tools, materials to be installed, a rented office, a storage garage, or a showroom, packaging the things you own alongside your liability coverage.
A sensible starting point is a one-million-dollar limit. The savings between $500,000 and $1 million is usually very minimal, so the higher limit is almost always worth it. Larger contractors – those working on condominiums, restaurants, parking garages or other high-value structures, typically need more, often pairing a $1 million general liability limit with a $5 million or $10 million umbrella. The higher the contract value, the more coverage you should carry.
One coverage worth asking about is contractor’s errors and omissions, which responds to faulty workmanship. It isn’t automatic on every policy, but as more claims involve improper installation, more vendors are beginning to require it.
If you’re hiring a contractor, always request a certificate of insurance, and ask to be listed as an additional insured on their policy. That gives their insurer an obligation to defend you, and it means you’ll be notified if their policy ever lapses or is threatened with cancellation.
This article is general information and not specific insurance, legal, or financial advice. Coverage terms vary by carrier and by your individual situation – chat to us first for the right insurance information for your needs.
