How to Price Insurance Into Bids for Residential vs Commercial HVAC Projects

Insurance is not optional for legitimate HVAC contractors — it’s a critical cost of doing business and a major factor owners and GC’s check during procurement. Pricing insurance correctly into bids prevents underbidding, protects margins, and ensures you meet contract requirements. This guide shows how to calculate, allocate, and present insurance costs differently for residential and commercial HVAC work in the USA, with real-world pricing ranges, sample calculations, and insurer examples.

Table of Contents

Why insurance pricing matters (short and sharp)

Protects profit: Insurance is an ongoing fixed/variable cost that must be recovered on projects.
Ensures compliance: Commercial contracts and large residential developments often mandate higher limits, bonds, or specialty policies.
Impacts competitiveness: Understating insurance costs exposes you to big losses; overstating can price you out.
Varies by location: State workers’ comp systems, minimum limits, local risk (hurricane, crime), and municipal requirements affect premiums.

Sources used for market pricing and industry guidance: Next Insurance, Insureon, The Hartford.

Next Insurance HVAC overview: https://www.nextinsurance.com/hvac-insurance/
Insureon HVAC insurance guide: https://www.insureon.com/small-business-insurance/hvac
The Hartford contractor insurance: https://www.thehartford.com/business-insurance/hvac

Key coverage differences: Residential vs Commercial (at-a-glance)

Coverage	Residential HVAC (typical)	Commercial HVAC (typical)
General Liability (GL)	$1M/$2M common	$2M–$5M or higher often required
Workers’ Comp	Standard by state; smaller payrolls	Higher due to larger crews, prevailing wage exposure
Commercial Auto	Light fleet for service vans	Multiple heavy vehicles, cranes, trailers
Professional/Errors & Omissions	Rare for small service work	Frequently required for design-build, controls, commissioning
Pollution/Environmental	Rare	Frequently required for refrigerant handling, retrofits
Builders Risk/Installation Floater	Occasional	Often required on large installs/retrofits
Bonds (Performance/Payment)	Less common	Frequently required on commercial projects

Bottom line: commercial work typically requires higher limits and more specialized coverages — plan to pay materially more per dollar of revenue.

Typical premium ranges (U.S., by company examples)

Next Insurance advertises small-HVAC general liability policies that can start in the low monthly tens for very small, low-risk operations (e.g., $29–$49/month) but this is for basic GL only and subject to underwriting: https://www.nextinsurance.com/hvac-insurance/
Insureon reports typical small HVAC business annual premiums roughly in these ranges: General Liability $400–$2,000; Workers’ Comp $3,000–$20,000 (depends heavily on payroll and state); Commercial Auto $1,000–$5,000: https://www.insureon.com/small-business-insurance/hvac
The Hartford shows contractor package pricing that varies widely — expect $1,200 up to $10,000+ per year for more-comprehensive packages as operations scale: https://www.thehartford.com/business-insurance/hvac

These ranges are illustrative. Large commercial firms with high payrolls, large install values, or complex exposures (refrigerant, controls, confined space) will see much higher totals and may also need umbrella ($5M–$20M) or professional liability policies.

How to calculate insurance costs into a bid — step-by-step

Compute annual insurance expense (all policies)
Add premiums for GL, workers’ comp, commercial auto, tools/equipment, umbrella, professional liability, and any project-specific policies (builders risk, pollution).
Choose allocation method
- Percent of revenue (common, easy)
- Hourly burden rate (useful for time-and-materials)
- Project-specific line item (best for large or unusual exposures)
Calculate burden and apply to project
- Burden % = (Total annual insurance expense) ÷ (Annual revenue)
- Project insurance charge = Project value × Burden %
Adjust for contract-specific requirements
Add incremental cost for higher limits or special policies the client/GC requires (e.g., additional insured endorsements, higher GL limits, pollution) as a separate surcharge.
Document
Include a clear “Insurance & Bonding” line item or note in the proposal describing limits and what the charge covers.

Two sample calculations (realistic, city-specific)

Example A — Residential-focused contractor, Los Angeles, CA

Annual revenue: $400,000
Typical annual premiums (LA has higher WC & liability exposure):
- GL (1M/2M): $1,200
- Workers’ comp: $8,000
- Commercial auto (2 vans): $2,400
- Tools & eq: $800
- Total insurance = $12,400
Burden % = $12,400 / $400,000 = 3.1%
If you bid a $10,000 residential AC changeout, allocate $310 to insurance (or list as a $310 line item).

Example B — Commercial-capable firm, Houston, TX (retrofit & tenant-improvement work)

Annual revenue: $2,000,000
Typical annual premiums (higher due to commercial exposures):
- GL (2M+): $4,000
- Workers’ comp: $40,000
- Commercial auto: $6,000
- Pollution/Professional/Installers’ floater: $30,000
- Umbrella (5M): $10,000
- Total insurance = $90,000
Burden % = $90,000 / $2,000,000 = 4.5%
For a $250,000 commercial rooftop unit (RTU) install, allocate $11,250 to insurance (or list separately).

Notes: California payroll costs and state workers’ comp rates are typically higher than many states; hurricane-prone Gulf/Southeast markets will see increased property & pollution pricing.

Pricing strategies: line item vs percentage vs burden rate

Line item (recommended for commercial): Show “Insurance & Bonding” as a separate cost with a brief breakdown — clients and GCs expect transparency and often require exact limits. Use this on projects over $50k.
Percentage addition (fast, for residential bids): Add your calculated burden % to the bid total. Works for routine residential work.
Hourly burden (service calls, T&M): Add an hourly insurance/overhead burden to tech rates. E.g., if burden = 3% and average bill rate is $150/hr, add $4.50/hr.

Always identify and itemize any extraordinary insurance costs required by the contract (OCIP/CCIP, project-specific GL limits, pollution) — these should be charged back dollar-for-dollar, not absorbed into a flat percentage.

Contract clauses, endorsements and certifications to watch for

Additional Insured endorsements (CG 20 10/20) — cost is usually small but required.
Waiver of Subrogation (workers’ comp) — may raise WC premiums or require specific carrier language.
Pollution/Environmental coverage endorsements — often required for refrigerant work.
Certificates of Insurance (COIs) and specific wording — ensure your broker can produce required language and ACORD forms.
Performance and payment bonds — typically 1–3% of contract value or charged by the surety as a premium based on financials.

Practical tips for negotiating and controlling insurance costs

Work with contractors-focused insurers: Next Insurance, The Hartford, Hiscox, Travelers often have packaged solutions and online quoting for HVAC trades. (Example: Next Insurance: https://www.nextinsurance.com/hvac-insurance/)
Bundle policies where possible (package policies) to reduce total premium.
Improve job-site safety and driver records to lower WC and auto premiums.
Use Experience Modification (Ex-Mod) monitoring in states where it applies — a good Ex-Mod materially reduces WC costs.
For new commercial entries, consider quoting insurance as a separate line item during pre-bid and provide options for limits to meet owner/G.C. requirements. See guidance on when to expand coverage to enter commercial work: When a Residential HVAC Company Should Expand Coverage to Enter Commercial Work

Quick checklist before submitting a bid

Did you calculate the full annual insurance expense?
Did you choose a pricing method (burden %, line item, hourly)?
Did you add incremental cost for contract-required limits/endorsements?
Can your broker produce the required COI and endorsements?
Have you referenced your firm’s Ex-Mod, loss history, safety programs if asked?