Beginner’s Guide to Contractor Insurance Coverage Options

Contractor Insurance: 7 Essential Coverages for 2024 Success

Understanding Contractor Insurance Coverage

Contractor insurance is essential for protecting your business from financial losses due to accidents, lawsuits, theft, and other unexpected events. Whether you’re an electrician, plumber, or any skilled tradesperson, the right coverage can safeguard your livelihood.

Here’s a quick overview of what contractor insurance covers:

  • General Liability Insurance: Protects against third-party bodily injury and property damage.
  • Workers’ Compensation Insurance: Covers medical bills and lost wages for injured employees.
  • Commercial Auto Insurance: Insures vehicles used for business purposes.
  • Tools and Equipment Insurance: Protects tools and machinery against damage or theft.
  • Property Insurance: Covers your business’s physical location and equipment.

Having comprehensive contractor insurance ensures that you can handle risks effectively and focus on growing your business.

Contractor Insurance Breakdown Infographic - contractor insurance infographic pillar-5-steps

What is Contractor Insurance?

Contractor insurance is a package of insurance policies designed to protect construction businesses from financial losses due to various risks. These risks include lawsuits, on-the-job injuries, equipment damage, and more.

Purpose of Contractor Insurance

The primary purpose of contractor insurance is to safeguard your business from unexpected financial burdens. Whether you’re a general contractor overseeing a large project or a subcontractor specializing in specific tasks, having the right insurance coverage is crucial. It helps you manage risks effectively, ensuring your business can withstand potential setbacks.

Types of Contractor Insurance

Contractor insurance typically includes several types of coverage, each designed to protect against different risks:

  • General Liability Insurance
  • Workers’ Compensation Insurance
  • Commercial Auto Insurance
  • Tools and Equipment Insurance
  • Property Insurance

Coverage Details

Let’s dive into what each type of insurance covers:

General Liability Insurance

This is the cornerstone of any contractor insurance policy. It covers third-party bodily injuries and property damage. For example, if you accidentally damage a client’s property while working, general liability insurance will cover the repair costs and any legal fees.

Workers’ Compensation Insurance

Almost every state requires this insurance if you have employees. It covers medical bills and lost wages if an employee gets injured on the job. For instance, if a worker falls off a ladder and breaks an arm, their medical expenses and some portion of their lost wages will be covered.

Commercial Auto Insurance

This insurance covers vehicles used for business purposes. It protects against expenses related to accidents, such as vehicle damage and injuries. If your electrician’s van collides with another car, commercial auto insurance will cover the repair costs and medical expenses.

Tools and Equipment Insurance

Your tools and equipment are essential for your work. This insurance covers the cost of repairing or replacing them if they are damaged or stolen. For example, if your landscaping supplies are stolen from your truck, this insurance will cover the replacement costs.

Property Insurance

This insurance covers your business’s physical location and equipment against damage from events like fire, theft, or natural disasters. If a fire destroys your roofing inventory, property insurance will cover the replacement costs.

Why You Need Contractor Insurance

Accidents and unexpected events can happen at any time. Without proper insurance, you could face significant financial losses that could cripple your business. Contractor insurance provides a safety net, allowing you to focus on completing projects and growing your business.

In the next section, we’ll explore the essential contractor insurance coverage options in more detail, starting with general liability insurance.

Essential Contractor Insurance Coverage Options

General Liability Insurance

General liability insurance is a must-have for any contractor. It covers you for property damage and injuries that happen because of your work.

Imagine this: You’re a painter, and while on the job, you accidentally spill paint on a client’s expensive carpet. General liability insurance can help cover the cost to replace the carpet.

It also covers legal fees if someone sues you. For example, if a homeowner trips over your extension cord and breaks their ankle, this insurance helps with medical bills and legal costs.

Workers’ Compensation Insurance

Workers’ compensation insurance is crucial if you have employees. It covers medical bills and lost wages if your workers get hurt on the job.

For instance, if an employee cuts their finger with a drill, workers’ compensation will cover their medical expenses and any wages they lose while recovering. Most states require this insurance by law if you have employees.

Commercial Auto Insurance

If you use vehicles for your business, commercial auto insurance is essential. This insurance covers vehicle damage and rental costs if your work truck gets into an accident.

Let’s say you’re driving to a job site and get into a fender bender. Commercial auto insurance helps pay for the repairs and might even cover the cost of a rental vehicle while your truck is being fixed. This type of insurance is usually required by law for business-owned vehicles.

Tools and Equipment Insurance

Your tools are vital to your work. Tools and equipment insurance covers the cost of replacing or repairing them if they are damaged or stolen.

Imagine your compressor breaks down due to motor failure. This insurance can help cover the repair costs, so you don’t have to pay out-of-pocket. This coverage is optional but highly recommended.

Property Insurance

Property insurance covers damage to your own property, whether it’s owned or leased.

For example, if a water pipe bursts in your office and floods the space, property insurance helps with the repair costs. It covers events like fires, tornadoes, and vandalism. This insurance ensures that your business location and equipment are protected from unexpected disasters.

Specialized Contractor Insurance Policies

Contractors’ All Risks (CAR) Insurance

Contractors’ All Risks (CAR) insurance is a non-standard policy that provides broad coverage for both property damage and third-party injury claims on construction projects. This type of insurance is essential for projects involving buildings, water tanks, sewage treatment plants, and more.

CAR insurance covers:

  • Property damage: This includes damage due to improper construction, renovations, or even temporary work erected on-site. For instance, if a windstorm damages scaffolding at a construction site, CAR insurance would cover the repair costs.
  • Third-party injury: If subcontractors or other third parties are injured while working on the project, this insurance helps cover medical expenses and legal fees.

The goal of CAR insurance is to ensure all parties involved in a project are protected, minimizing financial risks and ensuring smooth project completion.

Professional Liability Insurance

Professional liability insurance (also known as errors and omissions insurance) covers legal costs if a client claims your advice, designs, or work caused them a financial loss or damage. This is crucial for contractors who offer specialized services, such as plumbing, electrical work, or architectural design.

Consider this scenario: A client alleges that your faulty design caused structural issues in their new building. Professional liability insurance would cover your legal fees, court judgments, and settlements, whether the accusation has merit or not.

This insurance also covers:

  • Faulty designs: If your design work leads to project delays or additional costs, this insurance can help mitigate financial losses.
  • Improper installations: If an installation error causes damage or requires a redo, your coverage can help with the associated costs.
  • Third-party hires: If you hire subcontractors and they make a mistake, professional liability insurance can cover the resulting claims.

Inland Marine Endorsement

Inland marine insurance is a specialized policy that covers tools and equipment while they are in transit or at job sites. This is particularly important for contractors who frequently move their tools and equipment from one location to another.

Inland marine insurance covers:

  • Tools and equipment: If your tools are stolen from a job site or damaged during transport, this insurance helps cover replacement or repair costs.
  • Job sites: It also covers materials and equipment stored at job sites, ensuring you’re protected against theft, vandalism, or accidental damage.

For example, if someone swipes an expensive power saw from your job site, inland marine insurance would cover the cost to replace it.

By securing these specialized contractor insurance policies, you can protect your business from a wide range of risks, ensuring that you’re prepared for any unexpected challenges that may arise on the job.

In the next section, we’ll discuss the factors that can affect the cost of your contractor insurance, helping you make informed decisions about your coverage options.

Factors Affecting Contractor Insurance Costs

When it comes to contractor insurance, several factors can influence how much you’ll end up paying. Understanding these can help you manage your costs effectively and ensure you get the right coverage for your needs.

Type of Work

The nature of your contracting work plays a big role in determining your insurance costs. High-risk jobs like roofing or electrical work often come with higher premiums due to the increased likelihood of accidents and liability claims. On the other hand, lower-risk jobs, such as landscaping or painting, may have lower premiums.

Number of Employees

The more employees you have, the higher your insurance costs will be, especially for workers’ compensation insurance. This is because more employees mean a greater risk of workplace injuries, which insurers factor into your premiums.

Coverage Needs

The types of coverage you choose and the policy limits you set will significantly impact your insurance costs. For example, opting for higher coverage limits will generally result in higher premiums. According to Forbes, the median cost per year for general liability insurance with $1 million per occurrence is about $1,090.


If your business involves the use of vehicles, you’ll need commercial auto insurance. The number of vehicles, their types, and how they’re used can all affect your insurance costs. For instance, a contractor with multiple work trucks will pay more than one with a single van.


Where your business is located also impacts your insurance costs. Areas prone to natural disasters, high crime rates, or stringent liability laws will likely have higher premiums. For example, a contractor in a flood-prone area might pay more for property insurance than one in a more stable region.

Claims History

Your past claims history is a crucial factor. Insurers look at your previous claims to assess your risk. A history of frequent or high-value claims can lead to higher premiums, while a clean claims record can help lower your costs. According to Insureon, having a proactive approach to risk management can also positively influence your insurance terms.

By understanding these factors, you can better navigate the complexities of contractor insurance and make informed decisions that protect your business without breaking the bank.

In the next section, we’ll answer some frequently asked questions about contractor insurance, providing you with more insights to help you choose the right coverage for your needs.

Frequently Asked Questions about Contractor Insurance

What is an independent contractor in insurance?

An independent contractor is a self-employed individual who provides services to clients without being an employee of any company. Unlike employees, independent contractors don’t receive benefits like healthcare or retirement plans from their clients.

This means they need to secure their own contractor insurance to cover potential risks. For example, if you’re a handyman and accidentally damage a client’s property, having general liability insurance can protect you from out-of-pocket costs.

What insurance do contractors need in Arizona?

Contractors in Arizona often need several types of insurance to protect themselves and comply with legal requirements:

  • General Liability Insurance: Covers property damage and injuries to third parties. Highly recommended even if not legally required.
  • Workers’ Compensation Insurance: Required if you have employees. Covers medical bills and lost wages for work-related injuries.
  • Commercial Auto Insurance: Necessary if you use vehicles for business purposes. Covers vehicle damage and legal costs from accidents.
  • Professional Liability Insurance: Also known as errors and omissions insurance. Covers claims related to professional mistakes or negligence.
  • Equipment and Tool Insurance: Protects your tools and equipment from theft or damage.

Is general liability insurance required in Arizona?

General liability insurance is not legally required for contractors in Arizona, but it is highly recommended. Without it, you could face significant out-of-pocket costs if you are sued for property damage or injuries.

Many clients and general contractors also require you to have general liability insurance before they will hire you. This helps protect all parties involved in a project from financial loss due to unforeseen accidents or mistakes.

In the next section, we’ll dive into the specialized contractor insurance policies that can further protect your business from unique risks.


In conclusion, contractor insurance is crucial for protecting your business from a variety of risks. From property damage and workplace injuries to vehicle accidents and tool theft, having the right coverage can save you from significant financial losses.

General liability insurance is essential for covering property damage and injuries to others. Workers’ compensation insurance helps with medical bills and lost wages for injured employees. Commercial auto insurance covers your business vehicles, while tools and equipment insurance protects your vital work tools. Property insurance ensures your owned or leased property is covered against events like fire or vandalism.

Specialized policies, like Contractors’ All Risks (CAR) insurance, professional liability insurance, and inland marine endorsements, offer additional layers of protection for more specific risks.

Choosing the right coverage isn’t just about meeting legal requirements; it’s about safeguarding your livelihood. At Toth-Felty Insurance, we understand the unique needs of contractors and offer tailored solutions to fit your business. Our expert team is here to help you navigate your options and ensure you have comprehensive protection.

For more information, visit our Contractors Insurance Services page and take the first step towards securing your business today.

The right coverage can make all the difference. Don’t wait until it’s too late—protect your business now with Toth-Felty Insurance.

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