What insurance does a contractor need?

A contractor may need several policies for property damage, employee injuries, vehicles, tools and professional advice. Choose coverage from the work you perform, your state's requirements and your contracts, then ask an insurance agent to check exclusions and limits before the job starts.

Match each risk to the relevant policy

These are starting points for a coverage discussion, not promises that a claim will be paid. California's commercial insurance guide explains the main policies and exclusions. Discuss professional liability if you provide design, calculations or specifications, and required workers' compensation before anyone starts work.

General liability may cover resulting damage, not repair of your work

For example, a faulty water-heater connection damages a customer's floor and drywall. The insurance question is which damage the policy covers, not just what caused the leak.

The floor and the drywall are third-party property damage, and a general liability policy is built for that. The water heater itself — your work, the thing you installed wrong — usually is not. Standard forms carry exclusions for damage to the particular property you were working on and, separately, for damage to your own completed work. Wording differs between carriers and endorsements can change the answer, so read your own exclusions with your agent.

Do not budget on liability insurance paying to redo defective work. Ask the agent how the policy treats both the work itself and resulting damage; exclusions and endorsements control the answer.

Two other pieces of the same policy are worth knowing by name. Products-completed operations addresses covered bodily injury or property damage arising from completed work. An aggregate is a combined limit for the claims it applies to during a policy period; products-completed operations commonly has its own aggregate. Check the actual policy period, limits and any per-project endorsement.

Workers' comp is a state rule, and it can reach your subs

There is no national threshold. States differ on when coverage becomes mandatory — whether the count starts at one employee or higher — and construction can have distinct requirements. Texas generally makes coverage optional for private employers, with exceptions including employees on government projects. Check your state's workers' compensation agency guidance and confirm coverage with your agent.

Ask about owner exclusions and subcontractor records too.

You may be able to exclude yourself, and that is a real decision. Owners of an LLC or corporation can often file to exclude themselves and lower the premium, where the state allows it. Before you do, check whether your health plan excludes work-related injuries — some do, which may leave a gap for an injury at work.

An uninsured sub can land on your bill. Workers' comp and general liability premiums are audited after the policy year. Ask your insurer which subcontractor payments enter its premium audit and what evidence it requires to exclude them. Missing coverage records can create an additional charge. Get the certificate before the first day, and put its expiration date on your calendar.

The truck, and the tools riding in it, are two different problems

Tell your agent who owns and drives the truck, what it carries, and how it is used. Personal auto coverage may restrict business use; those details determine whether you need commercial auto. If employees run errands in their own vehicles, ask about hired and non-owned auto, usually an endorsement rather than a separate policy.

Do not assume vehicle insurance covers tools inside it. Ask separately about business equipment, because personal-property coverage may be limited. An inland marine equipment policy can cover tools at sites, in storage and in transit, depending on its terms. Check theft exclusions, per-item limits, scheduling requirements and the deductible. Ask explicitly about rented equipment.

What a certificate of insurance actually has to say

A certificate of insurance summarizes coverage; it does not amend the policy. Texas's certificate guidance explains why the certificate cannot promise coverage absent from the policy. What a GC is really asking for are the endorsements on the policy behind it:

• Additional insured, extending your liability coverage to them. Ongoing operations and completed operations are commonly separate endorsements, so a request for both is normal on construction work.
• Waiver of subrogation, limiting the insurer's right to seek repayment from the specified party for covered losses, under the endorsement's terms.
• Primary and non-contributory, putting your policy ahead of theirs.
• Per-project aggregate, when a client does not want your annual ceiling shared with everyone else's jobs.

Each can carry additional premium, and some carriers will not write all of them for every trade. So "can you send a COI by Monday" is a call to your agent, not a search of your files.

Understand what a surety bond protects

A surety bond backs a specified obligation to another party. The SBA describes performance and payment bonds as protecting completion and payment obligations. Check licensing and project requirements, and read the indemnity agreement: you may have to reimburse the surety for a claim it pays.

What actually moves the premium

No article can tell you what your policy costs. That turns on your state, trade classification, claim history and carrier. What is stable is what each policy is priced on — which tells you what will change the number at audit.

Work with an independent agent who writes contractor policies in your state, and give every carrier the same payroll, receipts and class code so the quotes compare. Ask what is excluded, not just what the limits are — height work, roofing, hot work and excavation all get carved out by some carriers.

Where the premium shows up in your pricing

Recover each insurance cost once. Include payroll-related coverage such as workers’ compensation in burdened labor, business-wide coverage in general overhead, and insurance or bonds bought for a particular project in that job’s direct costs. Do not add premiums already recovered in burdened labor or direct job costs to overhead again.

For example, if you allocate $4,800 a year of coverage to general overhead and recover it through 1,200 billed hours, that adds $4 an hour to your selling rate. This example excludes coverage already counted elsewhere. Save the calculated selling rate in your DoneQuote catalog, then check the rate and quantities in the quote before sending.

Before accepting a job, send its insurance requirements to your agent and confirm which endorsements you actually have.