Contractor Insurance Explained: What Types You Need to See

Contractors working on your home should carry at minimum two types of insurance: general liability and workers compensation. General liability covers property damage and third-party injuries caused by the contractor's work. Workers compensation covers the contractor's employees if they are injured on your property. If either policy is missing and something goes wrong, the financial exposure lands on you.

Why Contractor Insurance Protects You, Not Just the Contractor

Most homeowners assume contractor insurance is the contractor's problem. It is not. When an uninsured contractor damages your home or when an uninsured worker is injured on your property, you become a direct party to the financial fallout.

General liability coverage means that if a contractor's crew knocks over a load-bearing wall they were not supposed to touch, or if falling debris cracks your neighbor's car, the contractor's policy responds first. Without it, your homeowner's insurance policy absorbs the claim, which raises your premiums or triggers a denial if the damage is tied to contractor negligence.

Workers compensation coverage means that if a worker falls off a ladder while installing your new roof, their medical bills and lost wages are covered by the contractor's policy rather than through a lawsuit against you. In most US states, property owners can be held liable for on-site injuries when a contractor does not carry required workers compensation coverage. The legal exposure is real and documented: state court records consistently show homeowners named in contractor injury suits where workers compensation was absent.

Verifying insurance before signing a contract is not optional. It takes five minutes and a phone call.

General Liability Insurance: What It Covers and Minimum Limits

General liability insurance is the foundational commercial policy for any contractor doing work at residential properties. It covers three categories of claims:

Property damage: Physical damage caused by the contractor or their crew to your home, your neighbor's property, or any third party's property during the course of the work. A subcontractor who cracks a foundation wall, a painter who spills onto hardwood floors, or an HVAC installer who damages a gas line are all general liability scenarios.

Third-party bodily injury: Injuries to anyone other than the contractor's own employees that occur because of the contractor's work. If a visiting delivery driver trips over the contractor's materials and is injured, general liability responds.

Completed operations: Coverage that extends after the work is done for claims arising from the completed project. A deck that collapses six months after installation causing injury is a completed operations claim.

For residential contractors on projects above $10,000, the Insurance Information Institute recommends a minimum of $1 million per occurrence and $2 million aggregate. Smaller handyman-scale contractors working on repairs under $5,000 may carry $500,000 per occurrence policies, which is generally adequate for low-scope work.

Workers Compensation: Why It Matters Even for Small Crews

Workers compensation is legally required for most contractors with employees in all US states except Texas, which makes it elective. Even in Texas, the absence of workers compensation creates significant legal exposure for property owners.

The specific requirement depends on the number of employees and the state. Most states require workers compensation for any business with one or more employees. A two-person roofing crew, a three-person framing team, or a solo painter who employs one helper all typically meet the threshold.

Sole proprietors and single-member LLCs who work entirely alone and hire no employees or subcontractors sometimes legally exempt themselves from the requirement. If a contractor claims they are exempt, ask them to explain the basis for the exemption and verify it with your state's workers compensation board. A contractor who is incorrectly uninsured and gets injured on your property can still sue you regardless of what they told you verbally.

The practical standard: unless a contractor can demonstrate a legal exemption specific to your state, require workers compensation coverage before work starts.

Commercial Auto Insurance: When It Applies

Commercial auto coverage covers vehicles used for business purposes, including contractor trucks and vans. Standard personal auto insurance does not cover vehicles used to haul tools and materials for commercial work.

This matters when a contractor's vehicle damages your driveway, your fence, or a neighbor's property while accessing your job site. A contractor driving a personal-use vehicle that happens to have commercial tools in it is likely not covered for those incidents under their personal auto policy.

For larger projects where contractors are making multiple deliveries or bringing heavy equipment on trailers, ask specifically whether their vehicles are covered for commercial use. This is a lower-stakes verification than general liability and workers comp, but worth a direct question for multi-week projects involving heavy machinery or large material deliveries.

How to Verify a Contractor's Insurance Is Current

Asking for a certificate of insurance is the first step. Reading it correctly is the second. A certificate of insurance (ACORD form 25 is the standard US format) shows:

• Policyholder name and address
• Insurance company name
• Policy number
• Coverage type (General Liability, Workers Compensation, Commercial Auto, etc.)
• Policy limits per occurrence and in aggregate
• Policy effective and expiration dates
• Any additional insured endorsements

Check three things on every certificate you receive:

1. Policy expiration date: The certificate is only valid if the policy is currently active. A policy expiring in two weeks is not adequate for a six-week project. Request a new certificate if the policy expires before your project ends.
2. Policy limits: Confirm the limits are appropriate for your project scope. A $500,000 general liability limit may be inadequate for a $150,000 kitchen addition.
3. Name on the policy: The business name on the certificate must match the name on your contract. If a contractor operates as "Smith Home Services LLC" but the certificate shows "John Smith," that is worth clarifying.

For definitive verification, call the insurance company listed on the certificate and confirm the policy is active. This takes five minutes and confirms the certificate has not been altered.

See How to Vet a Contractor's License and Insurance for the full verification process, including how to check license status through your state's contractor licensing board.

What Happens If a Contractor Is Uninsured and Something Goes Wrong

If a contractor does not carry general liability insurance and their work damages your property, your only recourse is civil litigation directly against the contractor. If the contractor is a sole proprietor with limited assets, the practical recovery may be minimal regardless of the legal outcome. Your homeowner's insurance policy may respond if you add a claim, but contractor-caused damage is often a coverage gray area and may trigger a dispute with your insurer about the source of the damage.

If a contractor does not carry workers compensation and a worker is injured on your property, the worker can file a personal injury lawsuit against you as the property owner. Your homeowner's liability coverage may provide a defense, but coverage limits, policy exclusions for business activities, and the potential for claims exceeding policy limits all create real risk. This is not a theoretical scenario: state court dockets show these cases regularly.

The simplest risk management approach: make insurance verification a hard requirement in your contractor selection process, not an afterthought. Any contractor who is reluctant to provide a certificate of insurance is signaling that their coverage may not exist or may be inadequate.

Questions to Ask About Insurance Before Signing a Contract

Before signing any contract for work over $2,000, confirm answers to these questions in writing:

1. Do you carry general liability insurance? What is the per-occurrence limit?
2. Do you carry workers compensation? Does it cover all employees and subcontractors working on my project?
3. Are your subcontractors required to carry their own insurance, or are they covered under your policy?
4. Can you provide a certificate of insurance before we sign?
5. Will your policy still be active when your project is scheduled to complete?

For the sub-question about subcontractors: a general contractor's policy does not always extend to all subcontractors. Ask specifically whether your GC requires subs to maintain their own coverage, and ask for evidence. An uninsured subcontractor doing electrical or structural work creates the same exposure as an uninsured general contractor.

For a broader look at the contractor selection process including license verification and reference checks, see How to Hire a General Contractor and How to Avoid Home Improvement Scams.