Your Contractor Is Licensed.
But Are They Insured the Right Way?

A contractor's license proves they met minimum competency requirements set by your state. It does not mean they carry adequate insurance — or any insurance at all. And the phrase "licensed and insured" on their truck or website is a marketing claim, not a verified fact.

Here's the critical distinction most people miss: "insured" does not mean "properly insured for your project." A contractor can have an active insurance policy with coverage limits that are too low, exclusions that apply to your type of work, or a policy that expired last week. The only way to know is to verify.

• Licensed = met state competency requirements (exam, experience, bonding)
• Insured = has some form of insurance (but what kind? how much? is it current?)
• Properly insured = has adequate coverage types, sufficient limits, current policy, and you are listed as additional insured

General liability (GL) is the most fundamental insurance a contractor should carry. It covers third-party bodily injury and property damage arising from the contractor's work. If a contractor damages your property or a visitor is injured at the work site, this is the policy that responds.

• Typical minimums: $1,000,000 per occurrence / $2,000,000 aggregate. For large projects, require higher limits
• What it covers: property damage, bodily injury to third parties, completed operations (damage discovered after work is finished), personal and advertising injury
• What it does NOT cover: damage to the contractor's own work (that's builder's risk), employee injuries (that's workers' comp), professional errors (that's E&O), or intentional acts
• Additional insured endorsement: this is critical — request that you are added as an additional insured so the policy covers claims against you arising from the contractor's work

Watch out for contractors with minimum-limit policies ($300,000 or $500,000 per occurrence). While technically "insured," a single significant claim can exceed these limits, leaving you to cover the difference.

Workers' compensation covers medical expenses and lost wages for employees who are injured on the job. If your contractor has employees and doesn't carry workers' comp, you can be held liable for their injuries. This is one of the biggest financial risks in hiring contractors.

• Required in most states once a contractor has employees (thresholds vary — some states start at 1 employee, others at 3-5)
• YOUR liability: in many states, if a contractor's employee is injured and there's no workers' comp, you (the property owner) become the responsible party
• Sole proprietors: many states allow sole proprietors with no employees to opt out of workers' comp. Get this in writing and understand your exposure if they're injured on your property
• Subcontractors: if your contractor uses subcontractors, those subs should also carry workers' comp. If they don't, the general contractor's policy may need to cover them

Builder's risk insurance (also called course of construction insurance) covers the structure and materials during construction. This is different from the contractor's general liability — GL covers damage to other people's property, while builder's risk covers the project itself.

• Who needs it: typically the property owner purchases builder's risk, though some contracts place this responsibility on the contractor
• What it covers: fire, wind, theft, vandalism, and other damage to the structure and materials during construction
• When you need it: new construction, major renovations, and large additions. Less commonly needed for small repair or maintenance projects
• Your homeowner's policy may not cover it: standard homeowner's insurance often excludes construction activity and may not cover the full value of renovations in progress

If your contractor uses vehicles for business — hauling materials, towing equipment, transporting crew — personal auto policies typically exclude business use. An accident in an uninsured or underinsured business vehicle can create liability for you as the project owner.

• Personal auto policies exclude business use — if an employee is driving to your site in a company truck and causes an accident, a personal policy may deny the claim
• Hired and non-owned auto coverage — covers the contractor when employees use personal vehicles for business purposes
• When to require it: any project involving delivery of materials, hauling equipment, or workers commuting in company vehicles

A Certificate of Insurance (COI) is a one-page summary of a contractor's insurance coverage. It's the standard document you'll request and receive. But knowing how to read it — and knowing its limitations — is essential.

Experienced COI reviewers look for specific warning signs that suggest a contractor may be underinsured or using fraudulent documentation:

• Low coverage limits — $300,000 or $500,000 per occurrence is inadequate for most construction projects
• Policies expiring soon — if coverage expires within 30 days, request proof of renewal before work starts
• Missing workers' comp when the contractor has a crew — this is a major red flag
• Unfamiliar insurance company — verify the insurer is licensed in your state and has a solid financial rating (check AM Best)
• Contractor provides the COI themselves instead of having the insurer send it directly to you — this is how forged certificates circulate
• Image quality issues — blurry numbers, misaligned text, or inconsistent fonts can indicate a document has been altered

This is the section most people don't think about until it's too late. When your contractor is underinsured or uninsured and something goes wrong, the consequences flow uphill to you.

• Personal liability for worker injuries — if their employee falls off a ladder and there's no workers' comp, you may be sued for medical bills and lost wages
• Uncompensated property damage — if the contractor damages your property (burst pipe, structural damage, fire) and their insurance is insufficient, the excess comes out of your pocket
• Third-party injury lawsuits — if a neighbor, passerby, or delivery driver is injured at the work site, attorneys will name you in the lawsuit regardless of fault
• Mechanic's liens — if the contractor doesn't pay their subs or suppliers, those parties can place a lien on your property — even if you paid the contractor in full
• Your homeowner's insurance may deny the claim — many homeowner's policies exclude losses related to construction or contractor negligence

Many contractors say they are "licensed, bonded, and insured." People often confuse bonding with insurance, but they serve completely different purposes.

• A surety bond is a guarantee that the contractor will perform according to the contract. If they fail (abandon the project, do defective work), you can make a claim against the bond
• Bond amounts are often low — many state-required contractor bonds are only $10,000-$25,000, which barely covers a partial project failure
• Bonds do not cover bodily injury — if a worker or third party is hurt, the bond provides no protection
• Being bonded is not a substitute for being insured — you need both, and they serve entirely different functions

Before any contractor starts work on your property, verify every item on this list:

• Valid contractor's license (verify with your state's licensing board)
• General liability insurance with adequate limits ($1M/$2M minimum)
• You are listed as additional insured on the GL policy
• Workers' compensation insurance (if they have any employees)
• Commercial auto insurance (if vehicles are used for the project)
• All policy dates cover the full duration of your project
• COI received directly from the insurer (not just from the contractor)
• Insurance company verified by phone for policy status
• Builder's risk insurance in place (for major renovations or new construction)
• Surety bond verified (if applicable)

Insurance verification is one layer of protection. Your contract with the contractor should add additional safeguards:

• Insurance requirements clause — specify minimum coverage types and limits the contractor must maintain throughout the project
• Indemnification clause — the contractor agrees to hold you harmless for claims arising from their work, negligence, or failure to maintain insurance
• Right to stop work — if insurance lapses during the project, you have the right to halt work until coverage is restored
• Subcontractor insurance requirement — the contractor must ensure all subcontractors carry the same minimum insurance
• Lien waiver requirements — require signed lien waivers from subcontractors and suppliers with each progress payment