Business Owners Policy vs General Liability for Contractors

If you’re a contractor, the choice between a Business Owners Policy (BOP) and General Liability (GL) comes down to one big question: do you only need protection from what you might do to others, or do you also need to protect your own tools, office, and income if something goes wrong? Picking the wrong setup can leave painful gaps and cost you tens of thousands of dollars out of pocket when a claim hits.

Many contractors hear “you need general liability” and then someone else says “get a BOP, it’s better,” and it all starts to blur together. Both policies sound similar, both come from the same brokers, and both are often required in contracts, which is why it’s so easy to get confused.

On top of that, premiums in construction have been rising in many states, and one serious claim can easily run into five figures or more once medical bills, repairs, and legal fees are added up. Choosing a policy that doesn’t actually match how you work can mean you’re paying every month yet still writing a big check yourself when something happens.

This guide walks you, step by step, through what GL does, what a BOP adds, what each one does not cover, how much they really cost in 2026, and how to decide which setup fits your exact type of contracting business. You’ll leave knowing whether GL alone is enough or whether a BOP (plus a few add‑ons) makes more sense for you.

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Why Insurance Is Non-Negotiable for Contractors in 2026

Rising lawsuits in construction

Construction and trades are among the top industries for injury and property damage claims, which is why insurers, licensing boards, and big project owners focus so heavily on liability coverage. Even a “small” job can lead to a large claim if a client, tenant, or bystander gets hurt or believes your work caused damage.

Articles aimed at contractors regularly point out that a single fall, fire, or property damage incident can trigger claims of 20,000 dollars or more, not counting your time lost dealing with lawyers and paperwork. Those amounts are big enough to wipe out a year of profit for many small contractors.

Client contract requirements

Most commercial property owners, general contractors, and government clients now require proof of general liability before you set foot on site or sign a subcontract. It’s common to see minimum limits of at least 1 million per occurrence and 2 million aggregate written into contract language for contractors.

If you can’t provide a Certificate of Insurance (COI) showing the coverage they ask for, you can lose the job, be removed from a project, or wait while paperwork delays your start date. That’s money out of your pocket even if you never have a claim.

Licensing and permit requirements

In many states, you cannot even get or renew a contractor license without showing proof of general liability, and often workers’ compensation if you have employees. For example, states like Washington, Arizona, and others tie specific general liability limits and sometimes surety bonds to the licensing process for contractors.

Cities and building departments also frequently require GL before issuing building permits, especially for general contractors or higher‑risk trades. Working without required coverage can lead to fines, license suspension, or being barred from bidding on public jobs.

Real example: slip-and-fall at a job site

Imagine you’re remodeling a retail space. A customer of the store walks through the job area, trips over your extension cord, breaks an arm, and needs surgery. One insurance example aimed at contractors notes that a fall like this can easily turn into a 20,000‑dollar claim once medical bills and legal costs are counted.​

If you don’t have proper liability coverage, that money comes straight from your business and possibly your personal savings. With GL (or the liability part of a BOP), the insurer steps in to handle legal defense and settlement up to your policy limits.

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What Is General Liability Insurance for Contractors?

General Liability (GL) is the basic “must have” policy for most contractors. It protects you when your work causes injury or damage to someone else or their property.

What It Covers

For contractors, a standard GL policy typically covers:

• Bodily injury to others
  If a client, tenant, inspector, or other third party is hurt because of your operations (for example, tripping over your tools or being hit by falling debris), GL can pay for medical bills, settlements, and legal fees up to your limits.

• Property damage to others
  If you accidentally damage a client’s home, car, building, or contents while working, GL helps pay for repair or replacement. This includes well‑known scenarios like a fire started during work or water damage from a plumbing mistake.

• Personal and advertising injury
  GL usually includes limited coverage for things like libel, slander, or copyright/trademark issues in your ads, website, or marketing materials. This is less common for small contractors but still built into many standard policies.

• Legal defense costs
  One of the biggest benefits is that the insurer pays for your lawyer and defense, even if a lawsuit is groundless, as long as the claim itself is covered by the policy. Defense costs can stack up quickly, sometimes rivaling the actual settlement.

What It Does NOT Cover

This is where many contractors get surprised. GL is powerful, but it has clear limits:

• Employee injuries (Workers’ Comp instead)
  If your employee falls off a ladder, that is almost always handled by workers’ compensation, not GL. Many states require workers’ comp once you have any employees at all.

• Theft or damage to your tools and equipment
  GL generally focuses on other people’s property, not your own tools, trailers, or equipment. You’d need tools/equipment coverage, inland marine, or property coverage for that.

• Professional mistakes or bad design (professional liability)
  If you give bad advice, create a flawed design, or make an error in plans that causes a loss, that’s usually professional liability (errors & omissions), not GL.

• Auto accidents involving vehicles
  If you crash your work truck into another car, that’s for commercial auto insurance, not GL. GL might cover property damage caused by your work, but not by a vehicle accident.

Real-Life Examples

Here are common situations where GL can save you:

• Painter spills paint on client’s marble floor
  You’re spraying a ceiling and overspray ruins an expensive marble floor. The client demands the floor be restored or replaced. GL can step in to cover the cost of repairing or replacing that floor, up to your limits, after your deductible if one applies.

• Roofer drops tools on a client’s car
  While working on a roof, a bundle of shingles or tools slips and smashes the homeowner’s parked car. GL is designed to handle the claim for the damage to the vehicle because it’s someone else’s property damaged by your operations.

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What Is a Business Owners Policy (BOP)?

A Business Owners Policy (BOP) is a bundle: it combines General Liability with Commercial Property coverage, and often Business Interruption, in one package. It’s aimed at small to mid‑sized businesses, including contractors who have an office, shop, or significant tools and materials.

In simple terms:

BOP = General Liability + Property Insurance (plus often Business Interruption) in one policy.

What a BOP Typically Includes

While details vary by insurer, most BOPs include:

• General Liability
  The same core GL protection described above: bodily injury, property damage, and personal/advertising injury to others.

• Commercial Property
  Coverage for your business property such as your office or shop building (if you own it), furniture, computers, fixtures, and sometimes certain tools and equipment stored at your premises.

• Business Interruption (Business Income)
  If a covered event like a fire or major storm damages your premises and shuts you down temporarily, business interruption coverage can help replace lost income and pay ongoing expenses such as rent, payroll, and loan payments while you recover.

• Limited equipment coverage
  Some BOPs include limited coverage for tools and equipment, especially when stored at your office or shop, and you can often add endorsements or separate inland marine coverage to better protect gear that moves from job to job.

What It Does NOT Include

Even though a BOP is broader than GL alone, it still does not replace everything a contractor needs:

• Workers’ Compensation – must be purchased separately if you have employees, and is mandatory in almost every state once you hire staff.

• Professional liability (Errors & Omissions) – separate coverage for design mistakes, consulting errors, or bad advice.

• Commercial auto – separate policy for work trucks, vans, and vehicles.

• Surety or license bonds – usually required separately for certain licenses or public projects.

Real-Life Scenario

• Fire damages contractor’s rented office
  You rent a small shop where you keep files, computers, and some tools. A fire in the building damages your office build‑out, equipment, and stored materials. Under a BOP, the property section can help pay to replace your business contents, while business interruption can help cover lost income while the space is repaired.

• Theft of stored materials
  You keep a stock of flooring, tile, or electrical supplies in your shop. Thieves break in and steal a large portion of it. A BOP’s property coverage can help reimburse you for those stolen materials, subject to your limits and deductibles.

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Business Owners Policy vs General Liability: Side-by-Side Comparison

Here’s a quick look at how GL alone compares with a BOP for contractors:

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Which Is Better for Contractors?

“Better” depends on how you actually run your business, not what sounds fancy. Here’s how it usually breaks down.

Independent Contractors / Freelance Handymen

If you:

• Work alone or with one helper

• Don’t have a dedicated office or shop

• Store only a small set of portable tools (that you could replace without going broke)

…then General Liability alone is often enough as your starting point. It gives you the certificate clients and landlords ask for and protects you from big claims when you injure someone or damage their property.

You can then add separate, low‑cost coverage for tools or inland marine if you start carrying more expensive gear around.

Contractors With Office or Equipment Storage

If you:

• Rent or own an office, shop, or warehouse

• Store materials, inventory, or expensive tools in one place

• Rely on computers, office furniture, or machinery to run your jobs

…then a BOP usually makes more sense. It wraps GL and property coverage into one policy and often costs less than buying GL and property separately.

This way, a fire, theft, or major storm that hits your premises doesn’t just take out your stuff; your policy also helps keep your cash flow alive through business interruption coverage.

Growing Construction Companies

Once you start:

• Hiring multiple employees

• Running several crews at once

• Taking on larger commercial or government projects

…you’re usually in BOP + additional policy territory. You’ll likely need:

• A BOP for liability + property + business interruption

• Workers’ comp for employees (required almost everywhere)

• Commercial auto for trucks and vans

• Possibly professional liability and builders risk for project‑specific exposures

At this stage, it often pays to work with a broker who focuses on contractors so your coverage keeps up with your growth and contract demands.

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Cost Comparison (Updated 2026 Estimates)

Prices move every year, but current market data gives a clear ballpark for what you can expect.

Average General Liability Cost

Across multiple insurance studies and examples, small contractors often pay somewhere around 40–90 per month for standalone GL, with many clustering around 60–80 per month for standard 1 million / 2 million limits. Higher‑risk trades like roofing or large general contractors commonly pay more, while very small, low‑risk handymen and similar trades can sometimes land below that range.

Average BOP Cost

For small businesses in general, a typical BOP often falls in the 50–120 per month range, with several major insurers and comparison sites reporting averages or medians around 57–85 per month for many small operations. Contractors with more property, higher limits, or added coverages can easily see higher premiums, and some contractor‑specific bundles that include BOP plus other coverages average a few hundred dollars per month.

What Impacts Price

Insurers look at a few big levers when pricing you:

• Revenue – More sales usually means more exposure to claims, so higher revenue often equals higher premium.

• Number of employees – More employees mean more people who can make mistakes or cause accidents.

• Claims history – A clean record can keep your price closer to the low end; past claims push you higher.

• Trade type – Roofers, structural framers, and some GCs pay more than painters, handymen, or low‑risk specialty trades, because the work is riskier.

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When Clients Specifically Require One Over the Other

In real life, your choice is sometimes made for you by whoever is paying you.

• Government contracts
  Public agencies often have strict insurance requirements, including minimum GL limits, workers’ comp, surety bonds, and sometimes proof of property coverage or a BOP for prime contractors.

• Commercial property projects
  Landlords and building owners commonly insist on proof of GL with specific limits and may strongly prefer or require that any contractor with an on‑site office or build‑out carries a BOP or separate property coverage.

• Subcontractor agreements
  General contractors usually require subs to carry their own GL with at least 1 million per occurrence / 2 million aggregate and to provide a COI naming the GC as an additional insured. Some GCs also ask subs who store materials on their premises to carry property coverage or inland marine.

• Certificate of Insurance requirements
  Many contracts spell out exactly what must appear on your COI: policy type, insurer, limits, additional insured wording, and sometimes waiver of subrogation. If they specify GL only, you can meet the requirement with GL or a BOP (since a BOP includes GL); if they mention property or business interruption, a BOP or separate property policy is usually expected.

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Common Mistakes Contractors Make

Avoid these very common traps:

• Thinking a BOP replaces Workers’ Comp
  A BOP never takes the place of workers’ compensation; if you have employees and your state requires workers’ comp, you need a separate policy.

• Choosing the lowest limits just to save money
  Going with the cheapest 300,000‑limit GL policy might save a few dollars a month but can leave you under‑insured when a serious claim hits and contracts often demand 1 million / 2 million anyway.

• Ignoring inland marine coverage for tools
  Many contractors assume their GL or BOP automatically covers tools everywhere, but coverage is often limited or focused on property at your main premises. Inland marine (contractor’s equipment) is designed to cover tools and equipment that travel from job to job.

• Not updating coverage as the business grows
  Limits and policies that were fine when you were solo may be too small once you add employees, buy more equipment, or take on bigger jobs. Insurer and broker guides stress reviewing coverage regularly as revenue and operations change.

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Do Contractors Need Both?

Here’s the good news:

• You usually do not buy GL and BOP separately. A BOP already contains a full GL policy inside it, so you either carry GL alone or GL as part of a BOP.

What you may need on top of GL or BOP are add‑ons and separate policies, such as workers’ comp, commercial auto, inland marine, or professional liability, depending on your work.

A quick word on umbrella coverage

If you work big jobs or worry your 1 million / 2 million limits aren’t enough, you can add a commercial umbrella policy on top of your GL/BOP and sometimes commercial auto. Umbrella coverage kicks in when a covered claim uses up your underlying limit, giving you an extra layer of protection for large lawsuits.​

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State Requirements for Contractors

Rules vary, but there are clear patterns across the U.S.:

• Many states require GL for certain licenses
  Several states make you show proof of general liability (with specific limits) to get or keep a contractor license. For example, guides describe Washington, Arizona, and others tying specific liability minimums and bonds to contractor licensing.

• Workers’ comp is almost always mandatory if you have employees
  Most states require workers’ comp for any contractor with employees, and some have recently tightened rules so even small contractors without prior requirements must now carry it.

• Local rules and project owners add their own layers
  Cities, counties, and project owners can add extra requirements on top of state law, such as higher limits, certain endorsements, or surety bonds.

Because the details change by state and over time, the safest move is to check your state licensing board and local building department website, then confirm requirements with your broker.

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Additional Insurance Contractors Should Consider

Alongside GL or a BOP, most contractors should at least think about these coverages:

• Workers’ Compensation – Covers medical bills and lost wages for employees hurt on the job; often legally required.

• Commercial Auto – For work trucks, vans, and vehicles used for business, including liability and sometimes physical damage.

• Professional Liability (Errors & Omissions) – For design‑build work, consulting, or situations where your advice or plans could cause a loss.

• Builders Risk – Protects a building or project under construction against certain types of physical damage during the build.

• Inland Marine / Contractor’s Equipment – Covers tools, machinery, and equipment that move from site to site or are stored away from your main office.

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How to Choose the Right Coverage (Step-by-Step)

You can use this simple process to decide what you need right now:

1. Assess your risk exposure
   List the worst‑case scenarios that realistically could happen in your work: injuries to others, damage to high‑value property, fire in your shop, tool theft, etc.

2. Do you own or rent office/shop space?
   If you have any kind of dedicated space with build‑out, furniture, and computers, you should strongly consider a BOP so your property and income are protected, not just your liability.

3. Do you store materials or expensive equipment?
   If you carry inventory, specialty tools, or machinery that would be painful to replace, look at BOP + inland marine or tools/equipment coverage.

4. Do your contracts require higher limits or extra coverage?
   If you’re seeing 1 million / 2 million GL requirements, additional insured language, or requirements for property coverage, you may lean toward a BOP and possibly an umbrella policy.

5. Compare quotes, not just prices
   Get quotes for GL only and for a BOP, with the limits your contracts demand, and look closely at what’s included and excluded. Many insurers note that a BOP can cost less than buying GL and property separately while giving broader protection.

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Final Verdict

Here’s the clear bottom line you can use when you make your decision:

• Solo handyman / very small independent contractor
  If you mainly need proof of insurance and protection against hurting someone or damaging their property, a solid GL policy may be all you need to start, backed by proper limits (often 1 million / 2 million).

• Contractor with tools + office or shop
  If you have a physical location and store materials or expensive tools, a BOP is usually the smarter move because it protects both your liability and your own property, and can cover lost income after a covered loss.

• Growing construction business
  If you’re adding employees, trucks, and bigger projects, you’re typically looking at BOP + workers’ comp + commercial auto + possibly professional liability, builders risk, inland marine, and an umbrella.

If you’re unsure, a good rule is this: start with the minimum your contracts and state require, then build up to a BOP and add‑ons as soon as you have property, tools, or income you cannot afford to lose.

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Frequently Asked Questions

Is a BOP cheaper than buying separate policies?

Often, yes. Many insurers and brokers explain that a BOP is priced as a package, so it’s usually cheaper than buying a standalone GL policy plus a separate property policy with similar limits. You’re getting two major coverages together at a discount.

Does a BOP include tool coverage?

A BOP includes commercial property coverage, which usually protects business contents at your premises and sometimes limited off‑premises property, but it may not fully cover all tools and equipment that move from site to site. Many contractors still add inland marine / contractor’s equipment coverage to properly insure mobile tools and machinery.

Is General Liability required by law?

There often isn’t a single “GL law” for all businesses, but for contractors, GL is effectively required in many places because state licensing boards, cities, and clients demand it to issue licenses, permits, and contracts. In practice, you usually cannot operate legally or win decent jobs without GL.

Can I upgrade from GL to BOP later?

Yes. Many insurers that sell you GL when you’re small will let you upgrade to a BOP as soon as you qualify (for example, when you get an office or your property exposure grows). At that point, your GL becomes part of the BOP and you add property and often business interruption coverage.

Does a BOP cover subcontractors?

Not by default. Your BOP’s GL section covers your liability, but insurers and contractor guides stress that subs should carry their own GL and provide you with a COI, often naming you as an additional insured. Otherwise, your policy might end up paying for their mistakes, which can raise your premiums.

What coverage limits do contractors usually need?

Most small contractors carry at least 1 million per occurrence and 2 million aggregate in GL limits because that’s what many licensing boards and contracts demand. Larger projects, higher‑risk trades, or government work may require higher limits or an umbrella policy on top.