You are trying to protect a residential project from a sub failing to complete its work. Subcontractor default insurance (SDI) covers general contractors for specified losses when a sub defaults. It does not mean the sub carries general liability or workers’ compensation. Liberty Mutual SDI overview
Ask a licensed construction-insurance broker to compare the proposed SDI program with bonding and your own checks on subs. Check whether the program fits your work, available cash, and ability to manage a default.
What SDI covers when a sub defaults
Liberty Mutual describes SDI as protection for general contractors against losses incurred because of a subcontractor’s default. Its brochure discusses completing the defaulted sub’s scope while the general contractor retains control of the solution. SDI product overview; Insurer brochure
SDI differs from insurance for bodily injury or property damage liability. The SBA describes general liability in those liability terms. Do not use a sub’s GL certificate as evidence that you have default-loss protection. General liability overview
Take a specific failure to the broker. For example, ask what happens if your framing company leaves the work unfinished and you need a replacement. Ask what the proposed policy defines as default and which resulting costs it addresses. The illustration does not promise coverage for that event.
Compare SDI with a performance bond
A performance bond and SDI both concern performance risk, but they are different products. Travelers describes performance bonds as guaranteeing satisfactory project completion or compensation under the bond. Liberty Mutual describes SDI as insurance for a general contractor’s subcontractor-default losses. Performance bond explanation; SDI explanation
Use this table to prepare for your broker call:
Scroll to read all columns.
| Review item | Performance bond | SDI proposal |
|---|---|---|
| Instrument to inspect | Issued bond and incorporated obligations | Issued policy and program documents |
| Performance protection | Bond’s guarantee for the protected party | Policy’s specified default-loss protection for the insured contractor |
| Default process | Read the bond’s notice and response provisions | Read the policy’s definition, notice, and response provisions |
| Completion decisions | Confirm the roles assigned by the bond | Confirm the contractor-control provisions described by the insurer |
| Qualification | Ask what the surety evaluates and what you still review | Ask about contractor qualification and enrollment responsibilities |
| Cost exposure | Ask about price and remaining obligations | Ask about premium, retention, co-payment, and uncovered costs |
Use the table to review terms that vary by product. It does not establish a universal claim process for either product. Have the broker and your attorney compare the actual documents as well as the sales descriptions.
Do not confuse a performance bond with a payment bond
Travelers distinguishes performance bonds from payment bonds. The performance product addresses completion; the payment product concerns specified subcontractor, labor, and material payment obligations. Those are separate protections. Contract surety bond types
If your concern is unpaid suppliers or downstream payment claims, ask the broker which policy or bond addresses that concern. Do not describe SDI as automatically providing every protection found in a payment or performance bond.
Give your attorney the project owner’s requirements as well. An insurance proposal and a required bond may answer different obligations. Ask whether the proposed arrangement satisfies the contract rather than assuming a substitute is acceptable.
Which builders qualify for SDI
The insurer sources reviewed here identify general contractors as SDI customers. Liberty Mutual’s brochure also describes services involving the GC’s subcontractor prequalification and default-loss avoidance process. Product audience; Risk-services description
The published buyer profiles point toward large contractors with extensive subcontracted work. As checked in October 2026, AXA XL’s North America SDI profile targets commercial GCs and construction managers with at least US$100 million in annual subcontract costs. That is one carrier’s profile, not a universal eligibility threshold.
Residential use is a specialist large-builder market, not a routine purchase for most smaller homebuilders. Tract Home Insurance, a Contractors Choice Agency brand serving homebuilders, describes its SDI offering as aimed at the largest production builders. It says most residential GCs and midsize production builders will not qualify. This is the agency’s market guidance, not a national adoption survey.
If you build custom homes or remodel, these buyer profiles suggest checking eligibility before requesting a full SDI proposal. For a large production builder, ask about your program rather than assuming residential work is excluded. HUB’s homebuilder guidance calls for assessing SDI against the builder’s volume and risk profile.
These sources distinguish the buyer groups. They do not establish what percentage of U.S. residential builders carry SDI.
If you are a small residential builder, ask the broker whether carriers will consider your business and work. If you manage a larger program, describe the number and kinds of projects, trades, and subcontracts through your own business records. Do not assume company size alone answers eligibility.
If you are the sub, clarify whether the builder is describing its own program or requesting your insurance. Ask for a written explanation of any documents or qualification information you must provide. SDI is not another name for your liability certificate.
Check whether your residential projects are eligible
Give the broker your project types, new-build or remodel mix, geographic area, subcontracting process, and typical trade packages. Include whether work concerns individual custom homes or a broader building program. Ask the carrier which eligibility limits apply.
Ask:
- Are these residential project types eligible under this proposal?
- Which contracts, suppliers, or subcontracts can be included?
- How do we enroll, and who confirms enrollment?
- What qualification information must we collect and update?
- Who manages a default response inside our company?
- Which conditions could leave a loss outside the proposed protection?
The insurer brochure refers to enrollment materials and risk services involving subcontractor prequalification. Your actual duties still need confirmation in the issued program documents. SDI program materials
Check premiums and cash needed to finish the work
Ask the broker to list the premium and each portion of a loss you must pay in writing. Have the broker explain a retention, co-payment, or other cost-sharing term if present. Ask when you must fund completion work and what the claim process requires before reimbursement.
Ask the broker to work through examples of unfinished jobs from your business. Include replacement work, coordination, and any delay costs you want evaluated. Ask which costs fall within the actual definition of loss and which remain yours.
Do not select a program by premium alone. Compare the full proposal against the business risk you can carry. This is a suggested purchasing comparison, not a market-price estimate or a statement that every SDI policy has identical retained amounts.
Ask your accountant how the program would affect your available cash. Ask counsel to review obligations that affect recovery or contract enforcement. Keep those questions connected to the written insurance proposal.
Keep qualification files and default records
You still need to vet the sub when you carry default insurance. Liberty Mutual’s risk-services description includes assessment of the general contractor’s approach and subcontractor prequalification. Insurer brochure
As a suggested workflow, keep the company’s qualification documents, signed scope, work dates, instructions, and completion records. If performance deteriorates, record facts and communications. Give the broker and your attorney the sequence of events. A general statement that the sub failed leaves out the details.
Before ending, replacing, or changing a disputed arrangement, ask which contract and policy conditions control the response. Do not rely on a general article to determine whether the event qualifies as a covered default.
Check licenses, liability, and workers’ comp separately
Continue separate license, general liability, and workers’ compensation checks for each job. NC’s GC board says insurance is not a licensing requirement. A license therefore does not establish these policies. NC GC FAQ
Use the policy-checking process and prequalification review to organize the evidence your broker and project team need.
SDI sources describe subcontractor default protection for the general contractor. They do not establish that the subcontractor has every other required policy or that you are an additional insured under the sub’s liability coverage. SDI product scope
Use the subcontractor vetting workflow to assign the evidence check before the package is awarded.
Where Cercha fits
Cercha helps builders discover trade partners through Search, project portfolios, endorsements, and messaging. Use those features to begin qualification and scope conversations. Compare default insurance or bonds separately with your broker using your business and project records.