5 Types of Insurance Every Contractor Needs (And Which Ones You Can Skip)

Most contractors spend years building skills on the job, then lose everything in a single lawsuit because they didn’t carry the right coverage. The gap between “I’ll get to it” and “I should have gotten to it” can cost you your license, your business, and your savings.

Here’s what you actually need, plus an honest take on which policies you can reasonably defer until your business grows into them.

1. General Liability Insurance

Every contractor needs general liability coverage before stepping onto a job site. No exceptions. This is the policy that insurance for contractors nationwide centers around; it protects your business against third-party claims for property damage, bodily injury, and related legal costs. A client trips over your tools and breaks an arm. Your crew accidentally damages a wall that floods the unit below. General liability pays for legal defense, settlements, and medical costs, so those incidents don’t drain your bank account. Most general contractors, property managers, and municipalities demand proof of this policy before they’ll even hand you a contract; without it, you’re locked out of work that’d grow your business. Annual premiums typically start around $500 to $1,500 for a small operation, though costs climb with your payroll, trade risk level, and project types. It’s the critical foundation. Nothing else matters if this isn’t in place.

2. Workers’ Compensation

The moment you hire even one employee, workers’ compensation stops being optional in most U.S. states. Workers’ comp covers medical bills and lost wages for any employee injured on the job; it also protects you from lawsuits those employees might otherwise file directly against you. A roofer falls. A carpenter cuts a hand. An electrician gets burned. All these trigger claims. Without coverage, you’re paying those costs personally, and facing regulatory fines on top. Most states impose strict penalties for non-compliance, including stop-work orders that shut down your project mid-build.

But here’s where it gets tricky: solo operators with no employees can often skip this legally, though some states require it regardless. The moment you bring on a part-time helper or a subcontractor you control directly, check your state’s rules immediately. Don’t assume you’re exempt because someone works for you “casually.” The definition of employee is broader than most contractors realize.

3. Commercial Auto Insurance

Your personal auto policy won’t cover a vehicle you use for work. That’s not a technicality buried somewhere in fine print; it’s standard across virtually every personal auto insurer. Commercial auto insurance covers trucks, vans, and cars used to transport tools, haul materials, or travel between job sites; it pays for collision damage, liability if you hit another driver, and medical costs for anyone injured.

And if you operate your own pickup to sites every day using only personal coverage? You’re technically running uninsured for business use. A single at-fault accident while hauling a trailer full of equipment can expose you to a six-figure liability claim your personal insurer will flatly deny. Commercial auto rates vary based on vehicle count, your drivers’ records, and cargo type. If you only use a company vehicle occasionally, a lower-mileage commercial policy can keep your premium manageable while staying compliant.

4. Builder’s Risk Insurance

Builder’s risk covers a structure under active construction, and it’s one of the most project-specific types of coverage in the contractor world. Standard general liability doesn’t protect the building itself if a fire breaks out, a storm damages the framing, or vandals destroy materials on-site. Builder’s risk fills that gap. It covers the structure, materials stored on-site, and sometimes equipment from the moment construction starts until the project is complete and handed off.

Many lenders and property owners require it as a contract condition, particularly on larger residential or commercial builds. You’ll either purchase this policy yourself or confirm the property owner carries it before work begins. The premium typically runs between 1% and 4% of total project value, depending on location, construction type, and coverage limits. For small remodels or quick jobs under $25,000, some owners skip it and accept the exposure; for new construction or anything structural, it’s worth having.

5. Tools and Equipment Coverage

Your general liability policy doesn’t cover your tools. Your commercial auto policy doesn’t cover them either, at least not once they leave the vehicle. Tools and equipment coverage protects the physical gear you use every day, hand tools, power tools, and larger portable equipment, against theft, damage, and loss. A single break-in at a job site can wipe out thousands of dollars in gear that took years to accumulate.

This policy is relatively affordable; it often runs $200 to $600 per year for a small contractor. And it pays for repair or replacement, so a theft doesn’t stall your work. Some policies extend to equipment rented from a third party, which matters if you regularly rent specialty machinery. Look, the “skip it” caveat applies if you own almost nothing of value, if you subcontract most of your work, and carry only basic hand tools. But for any contractor who’s built up a real set of gear, the premium pays for itself.

Conclusion

The five types you actually need: general liability, workers’ comp, commercial auto, builder’s risk, and tools and equipment coverage. Each one closes a specific gap the others leave open. You can realistically skip builder’s risk on small cosmetic jobs, skip tools coverage if your gear has minimal value, and skip workers’ comp only if your state exempts solo operators. But the first three belong on every contractor’s list from day one. Get those locked in early, and expand the rest as your projects grow.

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