As a contractor, you may have been asked to get general liability insurance.
And whether it was for a customer’s project or to fulfill requirements to get your contractor license, you probably found yourself asking the following question:
“How much is my general liability insurance policy going to cost?”
That’s where we come in. We’re here with the answers to all your questions regarding general liability (GL) insurance costs for contractors, including:
What goes into general liability insurance cost for contractors? What does general liability insurance for contractors cover? Why contractors need general liability insurance And more
By the end of this article, you should have a better understanding of what exactly goes into your contractor insurance cost, so you won’t be left scratching your head over your policy costs.
Typically - not all contractors are the same, especially when it comes to how insurance providers may calculate how much your contractors insurance might cost.
For that reason, it’s important to understand that the type of construction and contracting industry you work in usually plays a role in your policy costs. There are many reasons why there are so many differences across the industries — and we’ll cover some of them in this article — but for now, know that your industry and the type of work you do will likely lay the groundwork for calculating your GL insurance costs.
Not all contractors are alike — and that means, depending on the services you provide, your GL costs might look different from that of other contractors.
For example, on the one hand, let’s say you have a friend who does residential remodeling. She focuses only on remodeling the interiors of homes, like kitchens and bathrooms. Her contractor insurance policy is relatively inexpensive.
You, on the other hand, work as a general contractor. Some of your work involves repairing or replacing roofs. As a result, your contractor insurance policy may be more expensive than the residential remodeler’s coverage.
There’s a reason why policy costs increase, depending on your type of work. That’s because certain contractor activities — like roofing — increase the likelihood that you’ll experience an expensive claim, such as:
Let’s stick with the roofing example. Roofing is listed as the fourth most dangerous job in the United States — just behind fishing, logging, and piloting – because the odds of falling are relatively high. Additionally, those falls tend to be catastrophic, with an estimated 34% that can become fatalities.
From an insurance provider’s standpoint, insuring a roofing business means knowing there’s a good chance that a high-cost claim resulting from a fall could happen.
That’s why a contractor insurance policy that includes roofing tends to be more expensive than another contractor who doesn’t perform roofing services.
But if you’re thinking of omitting one of your high-risk services just to get a cheaper insurance policy, resist the urge. Providing false information to your insurance carrier could cause cancellation of your policy and even ending up with you getting into a potential dispute over fraudulent claims.
The more employees you have — whether they’re full-time or part-time — the more likely it is that one of them may make a mistake or cause damage while performing work for your business.
It’s not as the result of the quality of your employees’ work — it’s a simple fact of life that human error can happen. And that is typically a lot more likely when you have multiple employees on the payroll!
We touched on this in item 2, but the type of risks within your line of work can play a big role in influencing the cost of your insurance policy.
For example, contractors who tend to work on a customer’s property may face increased risk exposure (such as property damage) than contractors who work out of their own location.
Here’s another example: If you’re a plumber, your work carries a substantial risk for property damage, particularly of water damage. If you accidentally cause a flood while working on a customer’s plumbing, you’d likely be liable for more than fixing the plumbing.
You also may have to front the costs of fixing the water damage and any resulting mold remediation.
If you want to cover your tools and equipment, which can usually be added to a general liability insurance policy, you may see a premium increase.
This type of coverage is usually known as “inland marine insurance,” and it can offer foundational protection against tool theft.
Here’s where we start to get into “insurance-y” language, so bear with us for a minute!
When you take out contractor insurance coverage, it typically includes two types of policy limits:
Per-occurrence limit: This type of policy limit puts a cap on how much your insurance provider will pay out per reported claim (or occurrence). For example, if the per-occurrence limit is $500,000, that means your insurance provider will pay only up to $500,000 for a single claim.
Aggregate limit: This limit puts a cap on how much your insurance provider will pay out throughout the entire policy year of coverage. For example, if your aggregate limit is $2 million, your insurance provider will pay out only up to $2 million on total claims within a policy year.
Aggregate limits for contractor insurance are usually set at $1 million or $2 million. Depending on your specific business, there usually isn’t a huge price difference between these two limits, so if you’re not sure which one to get, it may be worth getting the higher aggregate limit.
Just as with car insurance, you may be able to choose your own deductible for a business insurance policy.
Good news there: Some insurance providers offer a $0 deductible, meaning you likely won’t have to pay a single penny if you need to make a claim.
That does mean, though, that your policy may be a little pricier than if you had a small deductible, so be sure to ask your insurance provider what the cost difference might be.
We’ve mentioned a few of them in this article, but policy add-ons could increase the overall cost of your general liability insurance policy.
You could opt for add-ons like:
While the above items are the most common ways insurance providers calculate your general liability insurance cost, there are some carriers that use additional information to come up with that magic number.
That info could potentially include:
Want to see how much your general liability insurance may cost?
Try out our free quote comparison tool and get quote options from the nation’s top insurance providers. It typically takes less than 10 minutes to get quotes, plus you can pick and choose which coverage option works best for you and your budget.
And good news — you may be able to get a general liability insurance policy as low as $22.50/month.*
General liability insurance can typically cover many of the basic necessities of running a contractor business, with coverage for:
Let’s hone in on those first two items, because they tend to offer the most comprehensive coverage for contractors.
Bodily injury can be a relatively common risk for contractors, as they tend to work at customers’ properties, which can expose them to the kind of accidents that could result in an injury to another person.
Say, for example, one of your employees leaves tools lying around on the ground while he’s installing windows. You’ve talked to him about this several times, but he likes having his tools where he can see them.
Your customer is intrigued by the work being done by your employee, and goes over to check on the window installation.
Unfortunately, the homeowner doesn’t see the hammer hidden in the grass, and trips over it, falling face-first, breaking her nose..
She’s rushed to the hospital, and you’re left with a sinking feeling that your business will be liable for an expensive medical bill.
But that’s likely only if you don’t have general liability insurance.
If you do have a GL policy for contractors, your policy could cover the customer’s medical bills (up to your policy limit).
Plus, if your customer sues you for additional damages related to her accident, your GL policy may be able to cover the legal fees, and potentially other claims you’re ordered to pay.
Now let’s take a look at property damage, which also is covered under general liability insurance.
Let’s say that you’re reshingling the second-story roof of a customer’s home. As you’re wrapping up the job, you head down your ladder and start packing it away. Unfortunately, the ladder slips from your grip and breaks the home’s bay window. The homeowner demands that you pay to replace the broken window.
Without general liability insurance, you would have to pay for that broken window out of your own pocket.
But with general liability insurance, your policy could pay for the cost of replacing the window.
That means you’d have to pay only the deductible (or nothing at all, if you have a zero-deductible policy!).
Contractors can be exposed to a great deal of risk, especially if they work on customers’ properties. Plus, that risk only increases if the work includes activities that could lead to expensive claims.
It’s a fact of life that accidents happen. Even the most carefully prepared and cautious contractor may accidentally cause property damage or inadvertently injure a customer.
And even if you do everything right, you never know when you may run into a customer who sues you over something that you may not have done.
In any of the above situations, your general liability policy could help cover those costs, so it wouldn’t come out of your bottom line.
And if you started your contracting business to support your family, that’s a good thing, because that’s not money you likely would be willing to pay out over an accident, property damage, or even a lawsuit.
General liability insurance can cover contractors in a variety of other ways, including:
It’s our goal to help you not only learn how to manage your general liability insurance cost, but to also understand why you may need this coverage.
This understanding can make it a lot easier to feel confident about getting a contractor insurance policy, as well as knowing what you’re paying for!
Here at Simply Business, we’re happy to help contractors like you to find the insurance policies they need to cover their businesses. Plus, with GL policies starting as low as $22.50/month,* it’s never been more affordable to get the protection your business deserves.
* Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business. Averages based on January - December 2020 data of 10% of our total policies sold.
I love writing about the small business experience because I happen to be a small business owner - I've had a freelance copywriting business for over 10 years. In addition to that, I also head up the content strategy here at Simply Business. Reach out if you have a great idea for an article or just want to say hi!
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.