What Is Overhead & Profit (O&P) in Insurance Claims?

What is O&P?

When your home repair requires multiple types of contractors (called 'trades'), such as a plumber, electrician, drywall installer, and painter, a general contractorGeneral Contractor vs. Handyman: When You Need a GCFor smaller repairs a handyman may be perfectly capable, but insurance repairs that involve multiple trades, structural work, or permits require a ...
Read more → is typically needed to coordinate the work. Overhead covers the general contractor's business expenses like insurance, office costs, vehicles, supervision, and project management. Profit is their margin for taking on the risk and responsibility of managing the entire project.

The industry standard recognized by XactimateHow Insurance Estimates Work: Xactimate Explained for HomeownersNearly every insurance repair estimate in the United States is created using Xactimate, a specialized software program. Understanding how Xactimate...
Read more → is 10% overhead plus 10% profit, applied to the total cost of the subcontracted work. For example, on a $40,000 kitchen restoration involving seven trades, O&P would add $4,000 for overhead and $4,000 for profit, totaling $8,000. A common mistake homeowners make is not realizing O&P is missing from their estimate because it appears as a single line item at the bottom rather than being spread across individual tasks.

Without a general contractor coordinating the work, subcontractors show up at the wrong time, materials are not staged properly, and the project timeline stretches out significantly. This is related to how insurance estimates work in Xactimate, where O&P is a recognized and standard line item for multi-trade projects.

When does O&P apply?

O&P applies when a repair project involves three or more distinct trades. For example, a kitchen water damage repair might involve demolition, plumbing, electrical, drywall, flooring, painting, and cabinetry, that is seven trades, and O&P is clearly warranted. Even a seemingly simple bathroom repair can involve plumbing, tile work, drywall, and painting, which is four trades.

Xactimate, the estimating software used by nearly every insurance company in the country, has a built-in O&P function specifically because multi-trade projects are the norm, not the exception. In Florida and other coastal markets where storm damage often affects multiple systems in a home, most repair projects easily meet the three-trade threshold. A common mistake is accepting an adjuster's argument that certain tasks are not separate trades.

For instance, they may claim that demolition and drywall installation are the same trade, but in practice they are performed by different crews with different skills. Ask your adjuster to list every trade involved in the repair and count them yourself. If there are three or more, O&P should be included, and you should reference the Xactimate O&P guidelines when making your case.

Why is it commonly omitted?

Insurance adjusters sometimes omit O&P from initial estimates, particularly when they categorize certain work as tasks that can be done by a single contractor or when they argue that the homeowner can hire subcontractors directly. However, industry guidelines from organizations like the IICRC and the American Association of Public Insurance Adjusters recognize O&P as standard for multi-trade projects. Some carriers have internal guidelines that instruct adjusters to omit O&P on the first estimate and only add it if the homeowner or their representative pushes back.

This is not illegal, but it means billions of dollars in legitimate O&P goes unclaimed every year across the industry. In Florida, where hurricane damage routinely requires five or more trades, O&P omission is especially common on initial estimates. A homeowner who does not know to look for it simply accepts a settlement that is 20% lower than it should be.

If your repair involves three or more trades, O&P should be included, period. Ask your adjuster directly why it was omitted and request that it be added. If they refuse, document the request in writing and consider consulting a public adjusterWhen Should You Hire a Public Adjuster for Your Insurance Claim?A public adjuster is a licensed professional who represents you, the homeowner, in your insurance claim. Unlike the company adjuster who works for ...
Read more → who can advocate on your behalf.

How much does O&P add?

O&P typically adds approximately 20% to the total repair cost, calculated as 10% overhead plus 10% profit on the base estimate. On a $30,000 repair project, that is an additional $6,000. On a $75,000 whole-kitchen restoration, O&P adds $15,000.

For a major water damage claim affecting multiple rooms that totals $100,000 in base repairs, the O&P component is $20,000. These are not small numbers, and they represent real costs that a general contractor incurs when managing a complex project. The overhead portion covers the GC's insurance premiums, which can run $5,000-$15,000 per year, plus their office, vehicles, project management software, and supervision time.

The profit portion is their compensation for taking on the financial risk of the project, including warranty obligations. Without O&P, no reputable general contractor will take on a multi-trade insurance repair because they cannot cover their costs. This is directly related to the question of whether you need a general contractor or a handyman for your repair.

See also the guide on choosing a restoration contractorHow to Choose a Restoration ContractorChoosing the right restoration contractor is one of the most important decisions you will make during your insurance claim. The right contractor un...
Read more → for more on this topic.

What to do about it

Review your insurance estimate for an O&P line item, which usually appears at the bottom of the estimate as a percentage-based calculation. Count the number of distinct trades involved in your repair by listing each type of work separately, such as demolition, plumbing, electrical, drywall, flooring, painting, cabinetry, tile, and HVAC. If there are three or more, O&P is standard and should be included.

If it is missing from your estimate, ask your adjuster directly by saying something like 'I see this project involves five different trades. Can you explain why overhead and profit was not included? ' Reference Xactimate's built-in O&P function and the industry standard of 10% and 10%.

If your adjuster says O&P does not apply, ask them to put that in writing with their reasoning. A common mistake homeowners make is accepting the first estimate without reviewing it for O&P. Another mistake is not getting a second opinion from a restoration contractor or public adjuster who can confirm whether O&P is warranted.

In many cases, simply asking the question is enough to get it added because the adjuster knows the standard applies.