Insurance Costs for Independent Construction Contractors

For better or worse, construction work is a risky business. Mistakes happen, damages are incurred, and compensation must be paid to make it right. Independent construction contractors – usually Class C contractors – who get hired for specific aspects of construction projects know this well, so the cost of insurance might weigh heavy on the mind.

General contractors oversee a project from start to finish, but independent contractors are hired for specific jobs along the project’s timeline, like roofing, HVAC, or plumbing.

This means that insurance requirements are going to be totally different for a solo contractor than they are for a general contractor. So how much? How much does independent contractor insurance cost you? Let’s dig in.

Which Factors Affect Contractor Insurance Costs?

Several factors will affect your insurance costs as a contractor in California – your income, your business structure, the type of work you do, whether you have employees or not, and so on.

The California Contractors Insurance Services website lists averages for the cost of insurance based on salary ranges. But depending on the kind of work that a contractor is taking on, insurance costs will always vary.

The location of the work, individual risk factors, and policy coverage limits will also affect the overall cost. The items below should help an independent contractor run the numbers:

General Liability Insurance

While carrying a general liability policy is not required for all contractors, the Contractors State Licensing Board (CSLB) strongly recommends that they get them.

From the CSLB’s own insurance guide pamphlet, the CSLB recommends that anyone looking to hire a contractor require some type of financial safeguard to hold construction workers accountable, keeping them on the hook to cover the cost of damages either way. Although this is usually covered by your $25,000 contractor’s bond, liability insurance goes further to protect you and the homeowner.

Professional Liability Insurance
This type of coverage protects professionals against claims of negligence or inadequate work performance. It might include policies for errors and omissions insurance. Learn more about this type of liability insurance from the California Department of Insurance.

Workers’ Compensation Insurance
In the state of California, all businesses have to have this type of insurance if they have one or more employees. This insurance covers medical expenses and lost wages in the event of workers being injured on a job site.

For contractors specifically, a recent law all contractors will have to have workers’ comp by 2026! You may also need workers’ comp at this very moment if you’re a specialty classification holder, such as a C-8 or C-20 license holder. Finally, according to the CSLB, if you’re a contractor with certain active special class licenses, you have to have workers’ compensation insurance even if you have zero employees – that means even one-man-band contractors need workers’ compensation for certain classifications right now. In the future, ALL contractors must have workers’ comp, whether or not they have employees!

Commercial Auto Insurance
Contractors who use vehicles for business purposes absolutely need commercial auto insurance coverage. It protects them against accidents, theft, and damage to company vehicles.

Penalties for Uninsured Contractors

Contractors cannot work without securing adequate insurance coverage first. Any uninsured independent contractor actively working in construction could get sued, causing permanent damage to their reputation.

In a previous post, we answered the question Do You Need Insurance As A Contractor California? In that post we explain how you need to show some proof of insurance before you can even apply to become a licensed contractor, so check that out for a deeper dive on this topic.

All of this might seem pretty obvious, but as contractors take on different kinds of work throughout their careers, they will start to notice different kinds of liability that they’re taking on.

The onus is on independent contractors to assess as they work and determine which kind of insurance coverage they need from job to job to ensure that they are covered in case accidents or injuries occur.

California Independent Contractors and AB 5

In California, independent contractors of all types are directly impacted by the passage of Assembly Bill 5 (AB 5). Under AB 5, insurance obligations have changed for many different workers state-wide.

Depending on the classification of their work, an individual may carry certain insurance obligations that until very recently belonged to their employer.

AB 5 actually makes it pretty tough for employers to classify workers as independent contractors rather than employees. You can read all about this topic on the California Department of Industrial Relations website.

The takeaway here is that AB 5 has now incentivized independent contractors to get individual insurance coverage, including general liability and workers’ compensation, depending on the nature of their work.

Since businesses in California must comply with the terms of AB 5, it’s very important for independent contractors to keep their bases covered when it comes to insurance. An uninsured contractor cannot work legally and will not get hired.

While the price of insurance might be a short-term burden for the independent contractor, the long-term pain of facing legal penalties for working without insurance is much more costly.

Conclusion

There are many variables that determine the cost of insurance for independent contractors. That said, the average cost of general liability insurance for a small business in California is $1,284 per year.

The average cost of workers’ compensation insurance in California is $2.15 per $100 of payroll.

Contractors can expect to spend anywhere between $75 and $750 per year on Contractor’s Bonds.

This information may only serve as a jumping-off point for independent contractors navigating their careers and seeking out protection against unforeseen liabilities.

Dodging the responsibility of paying for insurance and bonding is not an option for independent contractors. They must understand the nuances of insurance costs and compare quotes from different insurance providers to get comprehensive coverage at the best value possible.