Business insurance for contractors: the policies a new service company needs

Insurance is an easy line item to put off when money is tight, and an expensive one to have skipped. One overspray on a neighbor's car, one fall from a ladder, one dropped mirror in a customer's hallway, and a year of profit can disappear. This guide explains the policies many service businesses carry, what each one is for, and how certificates of insurance work. It is general information drawn from the NAIC (the organization of state insurance regulators), the SBA, the IRS, state agencies and the Insurance Information Institute. It isn't legal, tax or insurance advice. Insurance rules vary by state, and policies differ by insurer, so a licensed agent who knows your trade should set your actual coverage.

General liability: the baseline policy

Commercial general liability, usually called GL or CGL, is the foundation. The NAIC describes it as covering four kinds of events you could be held responsible for: bodily injury, damage to others' property, personal injury such as slander and libel, and false or misleading advertising.

For a service company, that translates into everyday risks: a customer trips over your hose, a ladder dents a gutter, a cleaning chemical stains a countertop, a mower throws a rock through a window. GL is built for claims like these; the SBA's description of general liability includes defending lawsuits. Your own tools, your own injuries and your vehicles fall outside the NAIC's four categories, which are about your responsibility to other people. Ask your agent to walk through the exclusions for your trade line by line, including whether the policy pays anything toward redoing your own faulty work.

When you shop, you will see two limits: a per-occurrence limit and an aggregate (the most the policy pays in a policy year). Commercial clients and some homeowners associations set minimums for both. Find out what the property managers in your area require before you buy, so you do not have to change policies mid-year.

Do you need commercial auto insurance?

If you drive to jobs, probably. The NAIC is direct about the risk: "If you rely on personal auto or liability insurance to vehicles used for business, look closely at the provisions as business-related liability may be excluded." In plain terms, your personal policy may not pay if you hit someone on the way to a job with a trailer full of equipment.

The NAIC also notes that commercial auto policies typically carry higher liability limits, giving $1 million as an example, and may cover rented and non-owned vehicles, including employees' cars driven for company business. That last part matters the day a helper runs to the supply house in their own pickup. Tell your agent everything: trailers, towed equipment, who drives, and whether you carry fuel or chemicals.

Insuring tools, equipment and trailers

New owners often assume their homeowners policy covers the gear in the garage. The NAIC says homeowners or renters policies "are rarely adequate" for a home-based business, and that most individual policies limit business property coverage to $2,500 in the home and $250 away from home. A single commercial mower, surface cleaner setup or set of extension ladders can exceed that.

Gear that moves from job to job is often insured separately. The Insurance Information Institute, an industry-funded group, describes a tools and equipment floater as coverage for the insured property wherever it is used, and lists construction and contracting equipment among the things inland marine insurance can cover. A business owner's policy (BOP) is another option; the NAIC describes it as a package that typically combines property, business interruption and liability coverage. Ask how each one handles theft from a locked trailer or truck, and what proof of the theft the insurer will want.

Keep an equipment list with serial numbers, purchase dates and photos. It speeds up claims and helps your accountant with depreciation.

When is workers' compensation required?

Workers' compensation pays medical costs and lost wages for employees hurt on the job. For private employers it is governed by state law, not federal: the US Department of Labor directs workers injured at private companies to their state workers' compensation board. The NAIC says nearly all states require employers to buy a workers' compensation policy to cover employees. The rules on who counts as an employee, how many employees trigger the requirement, and whether owners are covered vary by state. The NAIC notes that owners and independent contractors are typically exempt, but that many states require coverage for owners who are considered company employees.

Texas is a well-known exception. According to the Texas Department of Insurance, Texas private employers may choose whether to carry workers' compensation, but it "is not required in most cases." Texas calls employers without coverage non-subscribers, and they must report that they lack coverage, and report certain work-related injuries, to the state's Division of Workers' Compensation. Elsewhere, plan on needing coverage once you hire, then confirm the exact trigger with your state agency.

Two traps catch new owners. First, calling a helper a "subcontractor" does not settle the question. The IRS test looks at behavioral control, financial control and the type of relationship, and states apply their own definitions for workers' comp and unemployment. The NAIC warns that in some states the workers' comp definition of an employee is very broad. Second, if you hire subcontractors, collect their certificates of insurance before they start, and ask your agent what happens under your policy if an uninsured sub's worker gets hurt on your job. Talk to your agent and an employment attorney before you bring anyone on.

Hiring also brings unemployment insurance. The federal side (FUTA) is paid only by the employer and isn't withheld from wages. For 2026, IRS Publication 15 lists a 6.0% rate on the first $7,000 of each employee's wages, with a credit of up to 5.4% for state unemployment tax. With the full credit the rate is 0.6%, which requires paying state unemployment tax in full, on time and on the same wages, in a state that isn't a credit reduction state. State unemployment rates and wage bases are set by each state. Your accountant should confirm the numbers for your payroll.

Other coverage worth asking about

• Professional liability (errors and omissions). The SBA describes it as protecting against losses from malpractice, errors and negligence, and the NAIC as coverage for wrongful practices by professional service providers. Worth asking about if your work includes design or inspection advice.
• Umbrella. The NAIC describes umbrella business liability as extra protection above a standard general liability policy. Commercial contracts sometimes require higher limits than a base policy provides.
• Pollution or chemical liability. Relevant if you apply chemicals or handle runoff, such as soft washing or lawn treatments. Ask your agent in writing whether your GL policy excludes pollution or chemical damage, and what it would take to cover it.
• Bonds. Some states require a license bond before they will license a contractor. California's contractors board, for example, won't issue or renew an active license without a $25,000 contractor's bond on file. The board says that bond is filed for the benefit of consumers hurt by defective construction or other violations of the license law, and of employees who weren't paid wages due to them. A license bond protects those people, not your own business.
• Cyber coverage. The NAIC describes cyber liability as covering damages caused by hackers and viruses. Worth a question once you store customer card data or addresses for hundreds of people. Using a payment processor that keeps card numbers off your systems reduces the risk to begin with.

How do certificates of insurance work?

A certificate of insurance (COI) is a one-page summary, issued by your agent or insurer, showing what policies you carry, the limits and the dates. It shows coverage; it does not create any. In a 2009 bulletin, the Indiana Department of Insurance said certificates generally serve only as an informational summary and should not be used to amend, extend or alter policy terms. Property managers, general contractors, HOAs and some homeowners will ask for one before you start, and many will ask to be listed as the "certificate holder."

Some clients go further and ask to be named as an additional insured, which extends part of your coverage to them for claims arising from your work. That has to be written into your policy, usually by endorsement; the same Indiana bulletin tells agents to refer special terms like these to the insurer instead of typing them onto the certificate. If a contract asks for additional insured status, a waiver of subrogation or primary and non-contributory wording, send it to your agent before you sign. Those terms change who pays when something goes wrong.

Make COIs fast. Save a current generic certificate as a PDF, know how to request a client-specific one from your agent the same day, and store each client's certificate in their customer record. In our own companies, the COI lives in the CRM next to the client's contract, so anyone in the office can send it while the property manager is still on the phone. A custom CRM can hold documents like this on the account, and flag certificates that are about to expire.

How to buy insurance as a new company

1. Write down exactly what you do, including the risky parts (ladders, chemicals, heights, heavy equipment, trailers).
2. Ask two or three independent agents who write policies for your trade to quote the same coverage.
3. Compare limits, deductibles and exclusions, not only the premium.
4. Ask what local property managers and commercial clients require, and buy to that level if you want their work.
5. Bind the policy before your first job, and set a calendar reminder 45 days before renewal.

Then tell customers you are insured. A line on your website, a mention on the quote, and a COI you can send the same day make you look like the established company you are becoming. It belongs in the same setup as your business number, website and Google profile, all covered in our startup checklist. For the trade-specific risks, see the guides in our start a company hub, and if you want a second look at the systems side of your new company, request a free system quote.

Frequently asked questions