Home › Guides › Overhead and profit on an insurance estimate: what O&P is, when carriers include it, and how to document it
Overhead and profit on an insurance estimate: what O&P is, when carriers include it, and how to document it
Two lines at the bottom of an estimate decide whether a general contractor can run the job at a margin or at cost. Carriers include them on some estimates and not others, and the reasons are only partly written down. This guide explains what overhead and profit is, how it is calculated, the rule of thumb carriers use, and what a file needs to show when it is left off. It is about documentation; it does not say what a given policy or carrier owes.
What O&P is
Overhead is the general contractor's cost of running the job that is not a line item: estimating, scheduling, supervision, permits and inspections, insurance, office and vehicles. Profit is the margin on top. Estimating software expresses both as percentages of the repair subtotal, conventionally 10 percent and 10 percent, applied after the line items and before tax in most configurations. They compensate the contractor who coordinates the trades, not the trades themselves; a roofer's own margin is already inside the roofing unit prices.
In Xactimate, O&P is a setting on the estimate rather than a line item. When it is on, the totals page shows the subtotal, the overhead percentage, the profit percentage and the grand total; when it is off, those lines are absent. Whether an adjuster turns it on is the whole question.
When carriers include it
The usual position: O&P is included when the repair reasonably requires a general contractor to coordinate it. The test most adjusters use is the three-trade rule: three or more trades (for example roofing, drywall and painting) suggest coordination is needed, so O&P goes on; one or two trades suggest the homeowner can hire them directly, so it stays off. The rule is a guideline that came from carrier practice. It is not a statute or regulation, courts in several states have declined to treat it as the test, and some carriers apply other factors: job size, whether permits are required, whether trades must be sequenced, and whether a general contractor is in fact doing the work.
| Situation | What usually happens |
|---|---|
| Roof replacement only, one trade | No O&P on the carrier's estimate; the roofer's margin is in the unit price. |
| Water loss: mitigation, drywall, paint, flooring, trim, plumbing | O&P included; multiple trades in sequence. |
| Two trades, but permit, structural engineer or sequencing needed | Argued case by case; the coordination narrative decides it. |
| Mitigation company doing its own dry-out with no rebuild | Generally no O&P on the mitigation estimate; some carriers allow it when the company also runs the rebuild. |
Paid up front or when incurred
On a replacement-cost policy the carrier may include O&P in the replacement cost value and hold part of it as depreciation, or it may pay O&P only when the policyholder shows a general contractor was hired and the cost was incurred. Policy wording and state decisions differ on whether O&P belongs in the actual cash value payment at all. Practically: the estimate should show O&P in the replacement cost, and the final invoice from the general contractor is what releases any held portion, exactly like other recoverable depreciation. How the holdback is released.
What the file needs when O&P is left off
- The trade list. Every trade the job requires, on one page, with a line each: what it does and where it falls in the sequence. Three or more trades, listed plainly, is the first thing a desk adjuster looks for.
- The coordination narrative. Three or four sentences on why a general contractor is needed: sequencing (drywall cannot start until drying is confirmed; flooring after paint), permits and inspections, subcontractor scheduling, homeowner access.
- Proof of the general contractor. The signed contract or work authorization naming the GC, and the subcontractor agreements or invoices showing the trades were subcontracted, not self-performed.
- The estimate with O&P applied, so the adjuster sees the exact figures requested, not a percentage in a letter.
- The request as a supplement item, in writing, through the carrier's document channel, by claim number. How to write a supplement.
O&P on the contractor's own estimate
A contractor writing an estimate for a job it will run as general contractor should turn O&P on and let the carrier remove it, rather than leave it off and ask later. The margin on self-performed trades still lives in the unit prices; O&P is the coordination fee on top. If the carrier's estimate omits it and the contractor's includes it, the difference is one of the clearest supplement items there is, because the request is a setting and a narrative rather than new scope.
What O&P is not
- Not sales tax. Tax is applied separately and is not subject to O&P in most configurations.
- Not markup on materials. Material prices in the estimate are already at the price list; O&P sits on the subtotal, not on individual items.
- Not automatic at 10 and 10. Carriers and regions differ; some use other percentages or a flat fee for small jobs.
- Not payable twice. A mitigation company's O&P and a rebuild contractor's O&P are each on their own scope; claiming both on the same lines is the quickest way to get the whole request rejected.
Questions people ask
Is the three-trade rule a law?
No. It is a guideline from carrier practice. Courts in several states have said the test is whether a general contractor is reasonably required, and the number of trades is evidence of that, not the rule itself.
Does a mitigation-only job get O&P?
Usually not on the carrier's estimate, because one company performs one scope. When the same company also runs the rebuild with subcontracted trades, O&P is commonly applied to the rebuild portion.
Can the homeowner collect O&P without hiring a general contractor?
That is a policy and state question. Some carriers include it in the replacement cost regardless; others pay it only when incurred. The policy's loss settlement section and the carrier's written position are where to look.
What percentages do carriers use?
Ten percent overhead and ten percent profit is the convention in estimating software and in most carrier estimates, but it is a default, not a rule, and some carriers vary it.
Where does O&P show up on the estimate?
On the totals page, as separate overhead and profit lines after the line-item subtotal and before or after tax depending on the configuration. If the lines are absent, O&P is off.