Contractor Insurance 101

Your insurance reputation matters

Your history follows you. To help keep premiums lower over time:

• Pay on time.
• Never let a policy lapse.
• Complete audits when asked.
• Keep clean payroll and subcontractor records.
• Use a bookkeeper or accountant.

Starting your contracting business

Requirements vary by state, city, and job. In Idaho and Utah, insurance is often required before licensing is finalized.

1. Hire a bookkeeper or accountant. Strongly recommended. A good bookkeeper tracks payroll and subcontractor payments and heads off audit surprises. Usually cheaper than cleaning up problems later.
2. Choose a business entity. Most contractors choose an LLC or corporation for liability protection.
3. Get your EIN (FEIN). Free from the IRS. Needed for payroll, taxes, banking, and insurance.
4. Decide: employees vs. subcontractors. Either model can work; both have pitfalls if you get it wrong. If you use subcontractors, they need to be legitimate subs — and you need current certificates.
5. Set up recordkeeping early. A simple system for payroll tracking, subcontractor tracking, and storing certificates and contracts.
6. Set up insurance. In practice, insurance is often needed before licensing is finalized or before you're allowed on certain jobs.
7. Meet licensing and registration requirements. State and local. These vary by state and city, and many jobs impose requirements beyond the state.

Core coverages contractors typically need

General liability (GL). Covers third-party bodily injury and property damage arising from your operations. This is usually what people mean by “proof of insurance.” Doesn't cover your own injuries or workmanship defects.

Work comp. Required in most states if you have employees. Covers medical costs and lost wages for work-related injuries. If you use subcontractors without proper certificates, they may be counted as employees for premium purposes.

Commercial auto. Covers vehicles used for business. Personal auto policies typically exclude business use — tools in the truck, trailers, employees driving, and jobsite travel can all create gaps.

Inland marine / tools & equipment. Covers tools, equipment, and materials in transit or at job sites. Your general liability policy doesn't cover your own stuff.

Smart optional coverages

Commercial umbrella. Extra liability protection above your GL, auto, and work comp limits. Often required by GCs on larger projects.

Installation floater. Covers materials and fixtures you've purchased but haven't installed yet. Common for remodelers and anyone buying materials before install.

Professional liability / E&O. Covers claims related to professional advice, design errors, or failure to perform. Relevant for design-build work.

Cyber liability. If you store customer data, process payments, or use connected systems on job sites.

Subcontractors & certificates

Work comp can charge you premium for uninsured subs as if they were your employees. General liability could deny claims or non-renew your policy. You need a current certificate of insurance from every sub, covering the dates they work for you.

Certificates should show the sub's GL policy, work comp if applicable, and you listed as certificate holder. Additional-insured status may be required depending on the job. There's a whole guide on the wording — what a certificate of insurance really is.

Understanding audits

At the end of your policy period, your insurance company audits your actual payroll and subcontractor costs against what was estimated when the policy was written. If you earned more or used more subs than estimated, you owe additional premium. If less, you may get a refund.

Audit prep is straightforward if your records are clean: payroll broken down by employee and job classification, subcontractor payments with the certificates that go with them. If your records are messy, the auditor makes assumptions — and they usually aren't in your favor.

Key terms you'll hear often

Certificate of insurance (COI). A document showing you have active coverage. GCs, property owners, and clients request these regularly.

Additional insured. Adding another party, usually a GC or property owner, to your policy so they have some protection under your coverage for work you do for them.

Experience modification rate (EMR / mod). A multiplier applied to your work comp premium based on your claims history. Below 1.0 is better than average; above 1.0 is worse. It’s tied to the business — and it follows you into a new venture you own more than half of.

Class code. A numerical code that categorizes the type of work you do. Your premium is partly based on this classification.

Waiver of subrogation. Prevents your insurance company from going after a third party to recover claim costs. Often required in contracts.

Blanket additional insured. Extends additional-insured status to anyone you're contractually required to add, without a separate endorsement each time.

When to reach out — and what to have ready

Reach out when:

• You're ready to start or update your policies.
• A city or a GC asks for wording you don't recognize.
• You receive an audit request.
• Job requirements go past what you currently have.

If you aren't a client yet, have these ready if you can:

• Business name and entity type.
• EIN (FEIN).
• What work you actually do.
• Estimated revenue, next 12 months.
• Estimated payroll, next 12 months.
• Estimated subcontractor costs, next 12 months.

Text the number up top with what you've got.