General Liability Insurance for Contractors: Cost & Coverage

General liability (GL) insurance pays when your work causes bodily injury or property damage to someone else — a client, a neighbor, a delivery driver, another trade on site — and it pays to defend you against those lawsuits. It doesn't cover your own employees' injuries, your vehicles, your tools, or the cost of redoing your own defective work. Several states require minimum GL limits to get or keep a contractor license, and nearly every general contractor, commercial client, and many permit offices require a certificate of insurance before you start.

This guide covers what a contractor GL policy includes, state minimums, how premiums and audits work, and the contract language you'll be asked to meet. If you're comparing GL with surety bonds, read contractor bond vs insurance first.

What a contractor GL policy covers

Most contractor policies are written on the standard commercial general liability (CGL) form, which has three coverage parts:

• Coverage A — bodily injury and property damage. Your crew's dropped beam dents a client's car; a visitor trips over an extension cord; a pipe you installed leaks two months later and ruins hardwood floors in the next room.
• Coverage B — personal and advertising injury. Claims like libel, slander, or using another company's advertising idea.
• Coverage C — medical payments. Small medical bills for injured third parties regardless of fault, usually with a low limit.

On top of those, the insurer pays defense costs for covered suits, generally outside the limits.

The limits on your declarations page

How the limits interact — example. You carry $1,000,000 per occurrence and $2,000,000 general aggregate. In one year, a scaffold collapse injures two people and settles for $1,300,000, and a separate water-damage claim settles for $150,000. The insurer pays $1,000,000 on the scaffold claim (the per-occurrence cap) and $150,000 on the water claim, using $1,150,000 of the aggregate. The remaining $300,000 of the scaffold settlement is yours unless an umbrella policy sits above the GL.

Completed operations matters more for contractors than almost any other business. A deck you built in March that collapses at a party in August is a completed-operations claim; keep that coverage in force, because claims can surface years after you finish.

What GL does not cover

Read the exclusions and endorsements before you compare prices:

• Your own work. The cost to tear out and redo faulty work is excluded; damage it causes to other property generally isn't.
• Employee injuries. Workers' compensation and employer's liability respond instead.
• Vehicles. Accidents involving autos are excluded; buy commercial auto.
• Your tools and equipment. Covered by inland marine (contractor's equipment) insurance.
• Professional design errors. Design-build firms need professional liability.
• Pollution. Mold, asbestos, lead, and fuel releases are usually excluded or sharply limited.
• Contractual liability you assume, except "insured contracts" as the policy defines them.

Contractor policies also often carry endorsements that narrow coverage further: exclusions for residential construction or new tract homes, roofing over a certain height, EIFS stucco, subsidence, or "action over" claims by injured workers of your subs. A classification limitation endorsement restricts coverage to the trades you listed on the application — if you're rated as a painter and you start doing structural repairs, a claim from that work may be denied.

States that set GL minimums for licensing

These are floors for licensing, not recommendations. Commercial contracts and general contractors commonly ask for $1 million per occurrence and $2 million aggregate. Federal agencies set their own minimum under FAR 28.307-2: at least $500,000 per occurrence of bodily injury coverage on most construction contracts, with project specifications often asking for more.

States without a GL mandate still matter: in Texas and other states without a statewide general contractor license, the city's contractor registration is often where the insurance requirement lives. See state vs city contractor licensing.

What it costs, and why your bill changes

No government agency publishes average contractor GL premiums, and online "average cost" figures blend trades with very different risks. What drives your price:

• Trade. A roofer, framer, or excavation contractor is rated much higher than a painter or finish carpenter.
• Exposure base. Contractor GL is commonly rated per $1,000 of payroll, gross sales, or subcontracted cost, depending on the trade classification.
• Residential vs commercial, height of work, and whether you do new construction.
• Claims history and years in business.
• Limits and deductible.
• Subcontractor management — whether your subs carry their own insurance.

The premium audit

Because the exposure base is estimated when the policy starts, the insurer audits your books after the year ends and adjusts the premium.

Example (hypothetical rate). Your policy is rated at $9 per $1,000 of payroll on an estimated $80,000 of payroll: $80,000 ÷ 1,000 × $9 = $720 deposit premium. The business grows, and actual payroll is $120,000. Audited premium: $120,000 ÷ 1,000 × $9 = $1,080, so you owe an additional $360.

The bigger audit surprise comes from uninsured subcontractors. Many policies treat payments to subs who can't produce a certificate of insurance as if they were your own payroll in that trade. Pay $50,000 to an uninsured roofing sub and that $50,000 may be rated at the roofing rate on your policy. Collect certificates before the first payment — the subcontractor insurance compliance guide and certificate of insurance tracking guide explain how.

Contract language you'll be asked to meet

General contractors and owners rarely accept a plain certificate. Expect these requirements in subcontracts and commercial jobs:

• Additional insured status for the GC and owner, for both ongoing operations and completed operations. The certificate should reference the endorsement, and you may need to send the endorsement itself.
• Primary and non-contributory wording, so your policy pays before the GC's own policy.
• Waiver of subrogation, so your insurer can't sue the GC to recover what it paid.
• Per-project aggregate, so claims on other jobs don't use up the limit for this one.
• Notice of cancellation to the certificate holder.
• Umbrella or excess limits above the GL, auto, and employer's liability policies.

Most of these require endorsements that must be added before the job starts. Send the contract's insurance section to your agent before you bid, not after you win.

Occurrence vs claims-made

Contractor GL is usually written on an occurrence form: the policy in force when the injury or damage happens responds, even if the claim arrives years later. A claims-made form responds only if the claim is made while that policy (or an extended reporting period) is in force. For contractors with long-tail completed-operations risk, an occurrence policy is far easier to manage when you switch carriers or close the business.

How to buy it

1. List your trades accurately, including occasional work. Misclassification is a common reason for denied claims.
2. Gather your numbers: payroll, gross receipts, amounts paid to subcontractors (insured and uninsured), and five years of loss history.
3. Collect the requirements from your licensing board, city, and typical client contracts, so the policy meets all of them.
4. Use an agent or broker who writes contractors, and compare at least two quotes on the same limits and endorsements.
5. Read the exclusion schedule, especially residential, height, EIFS, subsidence, and action-over exclusions.
6. Check the certificate you'll hand out: the named insured must match the licensed entity exactly.

Contractors in high-risk trades are sometimes placed with a non-admitted (excess and surplus lines) insurer when standard carriers decline the risk. Those policies carry a state surplus lines premium tax and stamping fees on top of the premium; you can estimate them with the surplus lines tax calculator.

Where GL fits in your budget and taxes

Insurance down payments are one of the largest early costs of starting out; see contractor startup costs for a full launch budget and the general contractor license cost calculator for license, bond, and insurance lines by state. Premiums are deductible on Schedule C line 15; the contractor tax deductions guide lists the rest. For a broader view of the risks GL leaves uncovered, the general contractor risk management guide walks through contracts, safety, and claims handling.