Contractor Insurance 101

If you read nothing else

Main policies most contractors need

General Liability (GL): Helps with accidental property damage or injuries caused by your work — not workmanship issues. Coverage depends on your policy and exclusions. This is usually what people mean when they ask for "proof of insurance."

Workers' Comp (WC): Helps if someone doing work for you gets injured. If subcontractors aren't properly insured (or you can't prove it), they may be treated like employees for rating purposes.

Commercial Auto: Personal auto policies often exclude business use (tools, trailers, jobsite driving, employees driving). Commercial auto is designed for work vehicles.

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
• Avoid unnecessary small claims
• Keep clean payroll and subcontractor records
• Use a bookkeeper/accountant

Subcontractors

You must get certificates from each of your subcontractors covering the time frame they work for you. If you don't, it will cost you. Workers comp can charge you premium as if they were employees. General liability could deny claims, non-renew, and could result in additional expenses.

Exclusions

Every policy excludes certain types of work or situations. Know what's not covered — and don't assume.

Starting your contracting business

Requirements vary by state, city, and job. In Utah and Idaho, 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 helps prevent audit surprises. This is 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 handled wrong. If you use subcontractors, they need to be legitimate subcontractors — and you need current certificates.

5. Set up recordkeeping systems early. You need 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). Requirements vary by state and city. Many jobs impose requirements beyond the state.

Core coverages contractors typically need

General Liability (GL): Covers third-party bodily injury and property damage claims arising from your operations. This is usually what people mean when they ask for "proof of insurance." Does not cover your own injuries or workmanship defects.

Workers' Compensation: 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 workers 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 contractors who do design-build work.

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

Staying compliant (and keeping costs down)

Your history affects your pricing over time.

• Pay premiums on time — lapsed policies create gaps in your record
• Complete audits promptly and accurately
• Keep clean payroll and subcontractor records
• Keep job descriptions accurate (don't misclassify work)
• Avoid filing small claims that cost less than the deductible
• Maintain current certificates from all subcontractors

Licensing: Work that requires a license needs to be done under the proper license classification. Work outside the required license or scope can create contract disputes and claim complications.

Recordkeeping: Clean payroll and subcontractor records reduce audit surprises and pricing issues.

Subcontractors & certificates

If your subcontractor isn't insured and you don't have proper certificates from them, it will cost you.

Workers 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, workers comp (if applicable), and you listed as certificate holder. "Additional insured" status may be required depending on the job.

Understanding audits

At the end of your policy period, your carrier 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 corresponding certificates. 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 proving you have active insurance 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 workers comp premium based on your claims history. Below 1.0 means better than average. Above 1.0 means worse.

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 needing separate endorsements 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 GC asks for wording you don't recognize
• You receive an audit request
• Job requirements don't match what you currently have

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

• Business name + 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)

Reading this guide first usually makes these conversations shorter and more specific.

Prepared by Ben Page Insurance as a general reference for contractors getting started.