Insurance & Bonding Requirements for General Contractors 

Thang Truong
Thang Truong
Updated on:

As a general contractor, obtaining the proper insurance and bonding is essential to protect your business and clients from potential risks and liabilities. Whether you are working on a residential or commercial project, having the right insurance and bonding in place can ensure that your business is covered in the event of an accident or loss. In this article, we will explore the insurance and bonding requirements for general contractors and how they can help safeguard your business.

What are the insurance requirements for general contractors? 

General contractors in all states are typically required to have liability insurance and workers comp insurance. If they use a vehicle for business purposes, they are legally required to have commercial auto insurance as well. 

Contractors liability insurance protects against claims of property damage or bodily injury that may occur during the course of a project. They may also be required to have workers’ compensation insurance to cover injuries or illnesses that their employees may sustain on the job. 

The requirements for insurance can vary depending on the state or jurisdiction where the contractor is working, so it is important to check with local authorities to determine what is required.

Are general contractors required to have general liability insurance? And what does it cover? 

General contractors are not required to have general liability insurance by law. However, this is the most common coverage all clients and customers would require general contractors to carry before signing the contract with them. So, it is very likely that as a general contractor, you must have a general liability insurance policy to be able to get work.

General liability insurance is a type of insurance that protects general contractors from financial loss in the event of claims of property damage or bodily injury that may occur during the course of a project. Some of the specific things that general liability insurance may cover for general contractors include:

Bodily injury

This type of coverage will provide financial protection if someone is injured on a job site. For example, a contractor is working on a construction site and a passerby is accidentally hit by a piece of equipment, the general liability insurance will help cover the cost of medical expenses and other related damages.

Property damage

This type of coverage will provide financial protection if property belonging to a third party is damaged while work is being performed. For example, a contractor is working on a roofing project, and an employee accidentally damages the exterior of a neighboring house, the general liability insurance will help cover the cost of repairs.

Medical payments

This type of coverage will provide financial protection if someone is injured on the job site and requires medical attention. For example, a contractor is working on a renovation project and a worker falls from a ladder, the general liability insurance will help cover the cost of medical expenses.

Advertising injury

This type of coverage will provide financial protection if a contractor is found liable for defamation, copyright infringement, or other similar advertising injuries. For example, a contractor is working on a project and uses copyrighted materials in their advertising without permission, the general liability insurance will help cover the cost of any legal fees and settlements.

Defense costs

This type of coverage will cover the cost of legal representation and other expenses associated with defending against a lawsuit. For example, a contractor is working on a project and is sued by a client for breach of contract, the general liability insurance will help cover the cost of legal representation and any settlements or judgments.

It’s worth noting that general liability insurance policies can also include additional coverage options, such as personal injury coverage, and products and completed operations coverage.

Personal injury

This type of coverage will provide financial protection if a contractor is found liable for personal injury, such as false arrest, malicious prosecution, wrongful eviction, or invasion of privacy. For example, a contractor is working on a project and an employee is falsely arrested, the general liability insurance will help cover the cost of legal fees and settlement.

Products and completed operations coverage

This type of coverage will provide financial protection if a contractor is found liable for injuries or damages caused by a product or service that was provided or completed by the contractor. For example, a contractor is working on a project and installs a faulty electrical system that causes a fire, the general liability insurance will help cover the cost of damages and any legal fees.

It’s important to note that the specific coverage and the amount required for general liability insurance can vary depending on the state, project and the dollar amount involved, so it is important to check with your insurance provider to determine the specific requirements for your needs.

Are general contractors required to have workers comp insurance? And what does it cover?

All states, except Texas, require general contractors to provide workers compensation insurance for their employees. Failing to do so may result in fine, suspended operations, or even jail time in some states. 

In general, workers comp insurance provides coverage when employees get injured or become sick while being at work. It provides coverage for the following: 

Medical expenses

Workers’ compensation insurance will cover the cost of medical expenses for employees who are injured or become ill as a result of their job. For example, a contractor’s employee sustains an injury on the job site, the workers’ compensation insurance will help cover the cost of medical expenses such as doctor’s visits, hospital stays, and physical therapy.

Lost wages

Workers’ compensation insurance will cover lost wages for employees who are unable to work due to a job-related injury or illness. For example, an employee can’t work for a month because of a job-related injury, the workers’ compensation insurance will help cover the cost of lost wages for that month.

Rehabilitation costs

Workers’ compensation insurance will cover the cost of rehabilitation for employees who are injured or become ill as a result of their job. For example, a contractor’s employee sustains an injury on the job site, the workers’ compensation insurance will help cover the cost of rehabilitation such as physical therapy, counseling, and vocational training.

Death benefits

Workers’ compensation insurance will provide death benefits to the dependents of employees who are killed on the job. For example, if a contractor’s employee is killed in an accident on the job site, the workers’ compensation insurance will provide death benefits to the employee’s dependents.

It’s important to note that the specific coverage and the amount required for workers’ compensation insurance can vary depending on the state and the type of work, so it is important to check with your insurance provider to determine the specific requirements for your needs and the state where your company is located.

Are general contractors required to have commercial auto insurance? Why? And what does it cover?

General contractors may be required to have commercial auto insurance if they own and operate vehicles for business purposes. The specific requirements for commercial auto insurance can vary depending on the state, but in general, it is required if a vehicle is used for business purposes such as transporting tools and equipment or workers to and from job sites.

Commercial auto insurance is similar to personal auto insurance but it provides broader coverage and higher limits of liability than personal auto insurance. It covers damages to the vehicle, liability for injuries or property damage caused by the vehicle, and medical expenses for anyone injured in an accident involving the vehicle.

Some of the specific things that commercial auto insurance may cover for general contractors include:

Liability coverage

This type of coverage will provide financial protection if the contractor’s vehicle causes an accident that results in injury or property damage to someone else. For example, if a contractor’s vehicle strikes another vehicle and causes damage, liability coverage will help cover the cost of repairs to the other vehicle and any medical expenses for the other driver.

Collision coverage

This type of coverage will provide financial protection if the contractor’s vehicle is damaged in an accident, regardless of who is at fault. For example, if a contractor’s vehicle is involved in an accident and is damaged, collision coverage will help cover the cost of repairs.

Comprehensive coverage

This type of coverage will provide financial protection if the contractor’s vehicle is damaged by something other than a collision, such as theft, fire, or vandalism. For example, if a contractor’s vehicle is stolen or damaged by a fire, comprehensive coverage will help cover the cost of repairs or replacement.

Medical payments

This type of coverage will provide financial protection if the contractor’s vehicle is involved in an accident and someone is injured. For example, if a contractor’s vehicle is involved in an accident and one of the passengers is injured, medical payments coverage will help cover the cost of medical expenses for that passenger.

It is important to note that commercial auto insurance policies can also include additional coverage options, such as rental reimbursement, and towing and labor coverage.

Rental reimbursement

This type of coverage will provide financial protection if the contractor’s vehicle is damaged or stolen and needs to be replaced temporarily. For example, if a contractor’s vehicle is stolen and needs to be replaced for a month, rental reimbursement coverage will help cover the cost of the rental vehicle.

Towing and labor

This type of coverage will provide financial protection if the contractor’s vehicle is disabled due to an accident or breakdown. For example, if a contractor’s vehicle breaks down on the way to a job site, towing and labor coverage will help cover the cost of towing the vehicle to a repair shop.

It’s important to remember that commercial auto insurance policies can vary depending on the state, business type, and the dollar amount involved, so it is important to check with your insurance provider to determine the specific requirements for your business.

Are general contractors required to have commercial property insurance? And what does it cover?

General contractors may be required to have commercial property insurance if they own or lease commercial property, such as an office or a warehouse. The specific requirements for commercial property insurance can vary depending on the state and the type of property, but in general, it is required to protect a contractor’s property from loss or damage.

Commercial property insurance is similar to personal property insurance but it provides broader coverage and higher limits of liability than personal property insurance. It typically covers damages to the contractor’s property, loss of income if the property is damaged and unable to be used, and liability for injuries or property damage caused by the contractor’s property.

Some of the specific things that commercial property insurance may cover for general contractors include:

Building coverage

This type of coverage will provide financial protection if the contractor’s building is damaged or destroyed. For example, if a contractor’s office building is damaged by a fire, building coverage will help cover the cost of repairs or replacement.

Business personal property coverage

This type of coverage will provide financial protection if the contractor’s personal property, such as tools, equipment, and inventory, is damaged or destroyed. For example, if a contractor’s tools and equipment are stolen from a job site, business personal property coverage will help cover the cost of replacements.

Loss of income coverage

This type of coverage will provide financial protection if the contractor’s property is damaged or destroyed and unable to be used, resulting in a loss of income. For example, if a contractor’s office building is damaged by a fire and unable to be used, loss of income coverage will help cover the lost income during the time the building is being repaired.

It’s important to remember that commercial property insurance policies can vary depending on the state, business type, and the dollar amount involved, so it is important to check with your insurance provider to determine the specific requirements for your business.

Are general contractors required to be bonded? Which types of bonds are required? What does bonding cover for general contractors?

General contractors may be required to be bonded in certain states or for certain types of projects. A bond is a type of financial guarantee that is designed to protect the owner of a project (known as the “obligee”) from financial loss if the contractor (known as the “principal”) fails to complete the project as agreed upon.

There are several types of bonds that general contractors may be required to have, including:

Bid bond

A bid bond is a guarantee that a contractor will enter into a contract and perform the work if they are awarded the project. For example, if a contractor is bidding on a project and wins the bid but then fails to enter into the contract or perform the work, the bid bond will help cover the cost of finding a new contractor to complete the project.

Performance bond

A performance bond is a guarantee that a contractor will complete the project as agreed upon. For example, if a contractor is awarded a project but then fails to complete it or fails to meet the terms of the contract, the performance bond will help cover the cost of finding a new contractor to complete the project.

Payment bond

A payment bond is a guarantee that a contractor will pay their subcontractors, suppliers, and other parties as agreed upon. For example, if a contractor is awarded a project but then fails to pay their subcontractors or suppliers as agreed upon, the payment bond will help cover the cost of finding a new contractor to complete the project.

It’s worth noting that bonding requirements can vary depending on the state, the type of project, and the dollar amount involved, so it is important to check with your insurance provider to determine the specific requirements for your needs.

Which states require general contractors to have surety bond? 

The requirements for surety bonds for general contractors can vary by state, and some states do not require them at all. However, many states do require contractors to have a surety bond in place as a condition of obtaining a contractor’s license. Some examples of states that require surety bonds for general contractors include:

  • California
  • Florida
  • Georgia
  • Indiana
  • Kentucky
  • Louisiana
  • Maryland
  • Mississippi
  • North Carolina
  • Ohio
  • Oregon
  • Pennsylvania
  • South Carolina
  • Tennessee
  • Texas
  • Virginia
  • Washington

It’s important to note that the surety bond requirements may also vary by the type of project and the dollar amount involved, so it is important to check with the state licensing board or other relevant authorities to determine the specific requirements for your state or area.

What are the differences between bond and surety bond? 

Surety bond and bond are often used interchangeably, but they are slightly different in meaning.

A bond is a financial guarantee that is designed to protect the owner of a project (known as the “obligee”) from financial loss if the contractor (known as the “principal”) fails to complete the project as agreed upon.

A surety bond is a type of bond that is provided by a surety company (also known as a bonding company) to guarantee the performance of the contractor. A surety company is an insurance company that specializes in providing surety bonds and acts as a third party in the bond agreement between the obligee and the principal.

In simple terms, a bond is a financial guarantee, and surety bond is a specific type of bond that is provided by a surety company. Surety bonds are often required in the construction industry to ensure that contractors will fulfill their obligations on a construction project.

Best general contractor insurance companies 

Many companies offer general contractor insurance. We have done intensive research and here are the top 4 companies that we are commendation. They each have pros and cons: 

  • Simply Business: Best for finding cheap coverage 
  • CoverWallet: Best for comparing several quotes from top-tier carriers 
  • NEXT: Best for liability coverage 
  • Smart Financial: Best brokerage firm to work with experienced agents

We always recommend working with a few companies or a brokerage firm to get and compare several quotes to find the best and the cheapest one for you. 

How much does general contractor insurance cost?

The cost of general contractor insurance can vary depending on factors such as the type and size of the projects the contractor typically works on, the location of the business, and the insurance coverage limits desired. On average, general liability insurance for contractors can range from $500 to $3,000 per year, while worker’s compensation insurance can range from $500 to $10,000 per year.

The average cost of surety bond for general contractors is $1,400 per year.

However, it’s important to note that these are just estimates and the actual cost will depend on the specific circumstances of the contractor. It’s best to get quotes from multiple insurance providers to compare costs and coverage options.

Thang Truong
Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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