The main types of construction insurance and bonds, what each covers, what clients and general contractors usually require, how workers’ compensation premiums are calculated and how to manage certificates for subcontractors.
Construction combines heavy equipment, work at height, changing sites, many trades and valuable property, so the potential for injuries, damage and disputes is high. Insurance protects the business from claims that could otherwise end it, and in practice you cannot win most commercial work without it: owners and general contractors check coverage before they sign. Insurance and bonding requirements are also part of contractor licensing in many states. See our guide to business licenses.
| Policy | What it generally covers |
|---|---|
| Commercial general liability (CGL) | Bodily injury and property damage to third parties caused by your operations or completed work, plus some personal and advertising injury |
| Workers’ compensation | Medical care and lost wages for employees injured on the job; employer’s liability coverage is usually included |
| Commercial auto | Vehicles used for the business, including liability and physical damage |
| Inland marine / contractor’s equipment | Tools, equipment and materials in transit or on job sites |
| Builder’s risk | The building or structure under construction, against perils such as fire, wind and theft, during the project |
| Professional liability | Claims arising from design, engineering or consulting errors, important for design-build work |
| Contractor’s pollution liability | Pollution incidents caused by your work, such as mold, asbestos disturbance or fuel spills |
| Umbrella / excess liability | Additional limits above your general liability, auto and employer’s liability policies |
Exact coverage depends on the policy wording, exclusions and endorsements. Read them with a broker who understands construction.
Workers’ compensation is required in most states once you have employees, and it is often a contractor’s largest insurance cost. Premiums are generally calculated per $100 of payroll for each job classification, multiplied by a rate for that classification, and adjusted by your experience modification rate (EMR), which compares your claims history to similar businesses.
| Item | Amount |
|---|---|
| Annual payroll for a carpentry classification | $400,000 |
| Illustrative rate per $100 of payroll | $8.00 |
| Base premium ($400,000 ÷ 100 × $8.00) | $32,000 |
| Experience modification rate | 0.90 |
| Modified premium | $28,800 |
Two practical points follow. First, accurate payroll records by classification matter: if hours are not split correctly between job types, you may pay a higher rate than necessary, and audits can bring surprise bills. Second, safety pays: fewer claims lower your EMR, which lowers premiums and helps you qualify for work where owners screen bidders by EMR. See our workers’ compensation guide.
Bonds are not insurance in the usual sense. A surety bond is a guarantee from a surety company to the project owner that the contractor will meet its obligations; if the surety pays a claim, the contractor must usually repay it. The main types are:
Federal construction contracts above a threshold set under the Miller Act require performance and payment bonds, and most states have similar laws for public projects. Bonding capacity depends on your financial statements, experience and track record.
Insurance review complete.
Send contract insurance clauses to your broker before you bid. Endorsements can take time and may add cost that should be in your price.
On larger projects, the owner or general contractor may provide an owner-controlled insurance program (OCIP) or contractor-controlled insurance program (CCIP), often called a wrap-up. It covers enrolled contractors for work on that project, typically general liability and workers’ compensation. If you work under a wrap-up, understand what is and is not covered, how to enroll, whether you must deduct insurance costs from your bid and what you need for off-site work.
Insurance requirements are set mostly at the state level. The SBA summarizes it this way:
For contractors, the contract often asks for more than the law. A general contractor or owner may require specific limits, additional insured status, waiver of subrogation or an umbrella policy. Send the insurance section of every contract to your broker before you sign it.
If a subcontractor without proper coverage causes an injury or damage, the claim can fall back on you, and workers’ compensation auditors may charge premium on uninsured subcontractor payments. Before a subcontractor starts work:
Our construction documents checklist includes insurance documents in the project file.
Insurers price risk. Contractors with written safety programs, regular toolbox talks, documented site inspections, prompt incident reporting and accurate payroll by classification are better placed to negotiate. Keep evidence of your safety program to share with your broker at renewal.
EZTime helps with the records side: hours tracked by job and role for payroll and workers’ compensation audits, digital safety checklists with photos and employee certifications stored with expiry reminders. See construction compliance.
Most contractors need commercial general liability, workers’ compensation if they have employees, commercial auto and equipment coverage. Depending on the work and contracts, builder’s risk, professional liability, pollution liability, umbrella coverage and surety bonds may also be needed.
Most states require workers’ compensation once a business has employees, with rules that vary by state, business type and number of employees. Some states have special rules for construction.
Insurance protects the policyholder against covered losses. A surety bond protects the project owner by guaranteeing the contractor’s performance or payments; if the surety pays a claim, the contractor generally must reimburse it.
A person or company, such as the project owner or general contractor, added to your liability policy by endorsement so they are covered for claims arising from your work.
Maintain a strong safety program, keep claims low to improve your experience modification rate, keep accurate payroll by job classification and work with a broker who specializes in construction.
General liability covers claims that your work or operations injured someone or damaged their property. Builder’s risk covers the structure being built, along with materials on site, against events like fire, theft or storm damage during construction.
Yes. Require subcontractors to carry their own liability and workers’ compensation coverage and collect certificates before they start. If a sub has no coverage, your workers’ compensation insurer may charge you premium for their payroll at audit, and an uninsured sub’s accident can become your claim.
Workers’ comp audits look at payroll by job class. EZTime tags hours by job and exports them, so your records match the work that was done.