5 Insurance Mistakes New Contractors Make (And How to Avoid Them)
Starting a contracting business? Don't let these common insurance mistakes cost you thousands or prevent you from bidding on jobs.
You've got the skills, the tools, and your first few leads. But before you bid on that first commercial job or hire your first employee, you need to understand contractor insurance—because one mistake can cost you everything.
We've worked with hundreds of contractors across Alabama, Georgia, and Tennessee. Here are the five most expensive insurance mistakes we see new contractors make—and how to avoid them.
Thinking You Don't Need Workers Comp as a Sole Proprietor
"I don't have employees yet, so I don't need workers comp."
Why This Is Wrong
Many general contractors require ALL subcontractors to provide proof of workers comp insurance—even sole proprietors with zero employees. Without it, you can't work on their sites. Period.
The Solution: Ghost Policy
Get a "ghost policy"—workers comp insurance for sole proprietors with no employees. It costs $500-$1,500/year and lets you provide the Certificate of Insurance (COI) general contractors require.
- ✓ Meets contract requirements for COI
- ✓ Protects you if you hire helpers occasionally
- ✓ Required in AL, GA, TN for most commercial work
Buying Minimum General Liability Limits
"I'll just get the cheapest GL policy to save money."
Why This Is Wrong
Most general contractors require $1 million per occurrence / $2 million aggregate minimum. Large commercial projects often require $2M/$4M. If you buy a $500K policy to save $200/year, you can't bid on 90% of jobs.
The Solution: Buy Standard Limits
Start with $1M/$2M general liability coverage. It's the industry standard and qualifies you for most jobs. Upgrading to $2M/$4M later costs more than buying it upfront.
Typical Cost Difference:
- $500K/$1M limits: $800/year
- $1M/$2M limits: $1,200/year (+$400)
- $2M/$4M limits: $1,800/year (+$600)
Forgetting Equipment Coverage
"My tools are in my truck, they're covered by my auto insurance."
Why This Is Wrong
Auto insurance covers your vehicle, NOT the tools inside it. If someone breaks into your truck and steals $15,000 in tools, your auto policy won't pay. Neither will your homeowners insurance.
Real example: Birmingham electrician lost $22,000 in tools from truck theft. No coverage. Out of business within 6 months.
The Solution: Inland Marine Insurance
Get Inland Marine (equipment) insurance to cover your tools, equipment, and materials—whether in your truck, at the job site, or in your shop. Costs $500-$1,500/year depending on equipment value.
- ✓ Covers theft from vehicles and job sites
- ✓ Covers accidental damage to your equipment
- ✓ Often included in Progressive's Contractor Policy
Waiting Until You Need It to Buy Insurance
"I'll get insurance once I land my first big job."
Why This Is Wrong
Insurance takes 1-7 days to bind (activate). General contractors won't let you start work without a COI. If you wait until you win the bid, you'll delay the job start—or lose the contract entirely.
Plus: You can't bid on jobs that require proof of insurance upfront. Many RFPs require COI submission with your bid.
The Solution: Get Insured BEFORE Bidding
Buy insurance before you start marketing your services. It's a cost of doing business—like your truck and tools. You can't operate without it.
- ✓ Start work immediately when you win bids
- ✓ Provide COI with your proposal (looks professional)
- ✓ Protected from day one if something goes wrong
Buying Each Policy from a Different Company
"I'll shop around and get the cheapest price for each coverage."
Why This Is Wrong
Buying workers comp from Company A, general liability from Company B, and equipment coverage from Company C means:
- ✗ No multi-policy discount (lose 10-15% savings)
- ✗ Three different renewal dates to track
- ✗ Three different agents to call for claims
- ✗ Higher total cost despite "shopping around"
The Solution: Bundle with One Agent
Work with an independent agent who can bundle Workers Comp + General Liability + Equipment coverage. You'll save 10-15% with multi-policy discounts, have one renewal date, and one point of contact.
Bundle Savings Example:
- Separate policies: $5,000/year
- Bundled package: $4,250/year
- Save $750/year (15%)
The Bottom Line
New contractors who get insurance right from the start save money, win more bids, and avoid catastrophic losses. Those who cut corners or wait too long often struggle to compete—or go out of business after one uninsured claim.
What Every New Contractor Needs:
- Workers Comp (even as sole proprietor) - $500-$1,500/year
- General Liability ($1M/$2M minimum) - $1,200-$3,000/year
- Equipment Coverage (Inland Marine) - $500-$1,500/year
- Bundle discount saves 10-15% on total cost
Ready to Get Insured the Right Way?
We specialize in contractor insurance packages for new businesses in Alabama, Georgia, and Tennessee. Get a custom quote for Workers Comp + GL + Equipment in one bundle.