Blog / Running Your Business
Contractor Insurance Basics: What Coverage You Need
Contractor insurance basics: general liability, workers' comp, commercial auto, tools coverage and bonds explained, plus how to shop and what to ask.
One flooded basement, one ladder fall or one fender-bender in the work van can wipe out years of savings for a small trade business. Insurance is how you keep a bad day from becoming the end of your business. It's also increasingly a requirement just to get work: property managers, general contractors and many homeowners will ask for proof of coverage before you start.
This guide explains the main types of insurance US contractors and home service businesses should know about, what each one generally covers, and how to buy coverage sensibly. It's general information, not insurance or legal advice. Policies differ, and requirements vary by state and trade.
Why contractors need business insurance
- Your work carries real risk. You're working in other people's homes, with water, electricity, gas, ladders and power tools.
- Customers and partners require it. Commercial clients and general contractors commonly ask for a certificate of insurance before you set foot on site.
- Some coverage is legally required. Depending on your state, that can include workers' compensation for employees and commercial auto coverage for vehicles.
- Licensing may depend on it. Some state or local licensing boards require proof of insurance or a bond.
The SBA's general advice is to insure against things you couldn't afford to pay for on your own (SBA: Get business insurance).
The core policies
General liability insurance
This is the foundation for most contractors. The SBA describes general liability as protecting against financial loss from bodily injury, property damage, medical expenses, defending lawsuits, and settlements or judgments (SBA).
Examples of what it's designed for:
- A customer trips over your extension cord and is injured.
- You accidentally damage a customer's floor or furniture while working.
- Property damage caused by your completed work (often called "completed operations" coverage; check your policy).
What it generally does not cover: injuries to your own employees, damage to your own tools, or accidents in your work vehicle. Those need other policies.
Workers' compensation
Workers' comp pays for medical care and lost wages when an employee is hurt on the job, and usually protects you from most lawsuits over those injuries. The rules are set by each state. Most states require it once you have employees, though thresholds and exemptions vary. Texas, for example, lets most private employers choose not to carry it, with notice requirements if they opt out (Texas Department of Insurance). Some states allow sole proprietors without employees to opt out or opt in for themselves.
Commercial auto insurance
If you drive to jobs with tools and materials, your personal auto policy may not cover accidents that happen while you're using the vehicle for business. A commercial auto policy covers vehicles used for work. It matters even more if employees drive your vehicles. Ask your agent whether your current policy covers how you actually use your truck or van.
Tools and equipment coverage
Your tools travel with you, which means they're exposed to theft from the truck or job site and damage in transit. Tools and equipment coverage (sometimes called inland marine insurance) can cover them wherever they are. Keep an inventory with serial numbers and photos.
Other coverage to consider
| Coverage | What it's generally for | Who often needs it |
|---|---|---|
| Business owner's policy (BOP) | Bundles general liability and property coverage | Small businesses with a shop or office |
| Commercial property | Your building, shop contents, inventory | Contractors with a shop or warehouse |
| Professional liability (errors & omissions) | Claims of mistakes in advice or design | Design-build, inspectors, consultants |
| Umbrella / excess liability | Extra limits above your other policies | Larger jobs, commercial work, high-value homes |
| Pollution liability | Mold, asbestos, lead, fuel or chemical spills | Remediation, some plumbing and HVAC work |
Bonds are not insurance
Contractors often hear about bonds alongside insurance, but they work differently. A surety bond is a guarantee to a third party, such as a customer or the state, that you'll meet your obligations. If the surety pays a claim, you're generally expected to pay it back. Some states require a license bond to get or keep a contractor license; California, for example, requires a $25,000 contractor license bond to issue, reactivate or renew a license (CSLB: Bond requirements). Larger or public projects may require bid, performance and payment bonds.
Certificates of insurance
A certificate of insurance (COI) is a one-page summary of your coverage that your insurer or agent issues. Commercial customers and general contractors will often ask:
- For a COI before you start work
- To be listed as an additional insured on your general liability policy
- For specific minimum limits
Ask your agent how quickly they can issue certificates. Fast turnaround can be the difference between landing a commercial job and losing it.
What affects your premiums
- Your trade and the type of work (roofing generally costs more to insure than interior painting)
- Payroll and number of employees
- Annual revenue
- Claims history
- Coverage limits and deductibles
- Your state and city
- Vehicles and driving records
How to buy contractor insurance
- List your risks. Where do you work, what could go wrong and what could you not afford to pay yourself?
- Check requirements. Your state, your licensing board, your customers and your general contractors may set minimums.
- Work with a licensed agent who knows contractors. The SBA suggests finding a reputable licensed agent and comparing offers (SBA).
- Compare quotes on the same terms. Look at limits, deductibles and exclusions, not just the price.
- Read the exclusions. Know what isn't covered before a claim, not after.
- Review every year. Update coverage when you add employees, vehicles, equipment or new types of work.
Quick insurance checklist for a growing trade business
- General liability policy in force, with limits your customers ask for
- Workers' comp in place before your first employee starts (where required)
- Commercial auto for every work vehicle, with all drivers listed
- Tools and equipment inventory with photos and serial numbers
- Any license bond your state requires, renewed on time
- A contact at your agency who can issue certificates quickly
- A calendar reminder to review coverage at every renewal
Show customers you're covered
Being insured is a selling point. Mention it on your quotes and website, and have certificates ready to send. Many contractors also print their license number on every quote and invoice. In SnipInvoice, your business name, address, phone, tax ID, license number and logo are copied onto every document, so the details your customer sees are consistent.
FAQ
What insurance does a small contractor need?
Most start with general liability. Add workers' compensation when you have employees (as your state requires), commercial auto for work vehicles, and tools and equipment coverage. Your trade, state and customers may require more.
Does general liability cover my employees' injuries?
Generally no. Employee injuries are typically covered by workers' compensation, not general liability.
Is my personal auto insurance enough for my work truck?
Not necessarily. Personal policies may exclude or limit business use. Ask your agent whether you need a commercial auto policy.
What's the difference between a bond and insurance?
Insurance protects you. A surety bond guarantees your obligations to someone else, like a customer or the state, and you're generally expected to repay the surety for any claim it pays.
Look as professional on paper as your coverage says you are. SnipInvoice is launching soon on iOS and Android. See how it works.