Insurance isn't optional for subcontractors. It's required by law in many cases, demanded by GCs in almost all cases, and essential for protecting the business you've built. But understanding what coverage you need and how much can be confusing.
This guide breaks down the insurance policies every subcontractor should consider.
General Liability Insurance
What It Covers
General liability (GL) protects against claims for bodily injury to third parties (someone trips over your equipment), property damage to others (you damage a client's property), personal injury (libel, slander), and advertising injury.
How Much You Need
Most GCs require $1-2 million per occurrence and $2-4 million aggregate. Higher-risk trades or larger projects may require more.
What It Doesn't Cover
GL doesn't cover your own injuries, your employees' injuries, professional errors, or vehicle accidents.
Workers Compensation Insurance
What It Covers
Workers comp covers medical expenses for work-related injuries, lost wages during recovery, disability benefits, and death benefits.
Who Needs It
Most states require workers comp if you have any employees. Some states require it even for sole proprietors in certain trades.
How Much You Need
Workers comp is typically structured as statutory coverage — it pays whatever benefits state law requires. Premiums are based on your payroll and the risk level of your work.
The EMR Factor
Your Experience Modification Rate (EMR) reflects your claims history compared to industry average. An EMR below 1.0 means you're safer than average and pay lower premiums. Above 1.0 means more claims and higher premiums.
Commercial Auto Insurance
What It Covers
Commercial auto covers liability for accidents involving your business vehicles, damage to your own vehicles, medical payments, and uninsured/underinsured motorist protection.
How Much You Need
GCs typically require at least $1 million in commercial auto liability. If you're hauling equipment or materials, consider higher limits.
Personal vs. Commercial
Your personal auto policy doesn't cover business use. If you use a vehicle for work, you need commercial coverage.
Professional Liability (Errors & Omissions)
What It Covers
Professional liability covers claims that your professional advice or services caused financial harm. This is most relevant for design-build contractors or trades that provide design services.
Who Needs It
Most subcontractors don't need E&O, but design-build contractors, engineering-related trades, and consultants should consider it.
Contractor's Equipment Coverage
What It Covers
Also called "inland marine" or "tools and equipment" coverage, this protects your tools, equipment, and materials from theft, damage, and loss.
Who Needs It
Anyone with significant investment in tools and equipment — which is most subcontractors.
Considerations
Coverage can be for owned equipment only or can include rented/borrowed equipment. Consider whether coverage is for actual cash value (depreciated) or replacement cost.
Umbrella/Excess Liability
What It Covers
Umbrella insurance provides additional limits above your GL, auto, and workers comp coverage. If a claim exceeds your primary policy limits, the umbrella kicks in.
Who Needs It
Any subcontractor working on larger commercial projects should consider umbrella coverage. It provides a safety net for catastrophic claims.
How Much You Need
$1-5 million is common. Larger projects may require more.
Builder's Risk
What It Covers
Builder's risk covers damage to work in progress — the structure being built and materials on site. This is typically carried by the owner or GC.
Who Needs It
As a subcontractor, you're usually covered under the project's builder's risk policy. But verify this in your contract. If you're a small residential contractor, you may need your own installation floater coverage.
Certificates of Insurance (COIs)
GCs will require you to provide Certificates of Insurance proving your coverage. Key things to know:
What's on a COI
Policy types and numbers, coverage limits, policy periods, additional insured status, and your insurance agent's contact.
Additional Insured Status
GCs typically require being listed as "additional insured" on your GL policy. This extends your coverage to protect them from claims arising from your work.
Blanket vs. Scheduled
Some policies offer "blanket additional insured" status that automatically covers GCs. Others require scheduling each GC specifically.
How to Get the Best Insurance Rates
Work with a Specialist
Find an insurance broker who specializes in construction. They know which carriers want your business and how to present your company.
Maintain Good Safety Records
A low EMR and clean claims history are your best tools for reducing workers comp premiums.
Bundle Policies
Many carriers offer discounts for bundling multiple policies.
Review Annually
Shop your coverage every 2-3 years to ensure competitive pricing.
Manage Your Classifications
Make sure your workers are classified correctly. Administrative staff shouldn't be classified as field workers for workers comp purposes.
Common Insurance Mistakes
Underinsuring
Carrying minimum coverage to save premiums leaves you exposed. One bad claim could exceed your coverage and bankrupt your business.
Gaps in Coverage
Make sure there are no gaps between policy periods or types of coverage. A lapse in workers comp can result in fines and make you unbiddable.
Not Reading Exclusions
Every policy has exclusions. Know what's not covered so you're not surprised when a claim is denied.
Not Updating Coverage
As your business grows, your coverage needs change. Review policies annually to ensure they match your current operations.
Frequently Asked Questions
How much does contractor insurance cost?
Costs vary widely based on trade, location, payroll, and claims history. Budget 2-5% of revenue for insurance as a rough estimate.
Can I operate without insurance?
You shouldn't. Beyond legal requirements, operating without insurance puts your business and personal assets at risk.
What's the difference between occurrence and claims-made policies?
Occurrence policies cover incidents that occur during the policy period, regardless of when claims are filed. Claims-made policies cover claims filed during the policy period. For GL, occurrence is usually preferable.