A premium audit confirms that the payroll, sales, or other exposure figures your policy was originally priced on match what actually happened during the policy period. Depending on how your business is structured, the auditor will ask for documentation covering your employees, any independent contractors you’ve used, and your gross sales.

Having the right documentation ready is the biggest factor in a smooth audit — the checklist below covers what to gather ahead of time.

• Your current policy can be non-renewed or canceled.
• The carrier has the right to penalize you with up to three times the amount of premium paid through the policy period.
• For Workers’ Comp audits, non-compliance is reported to the state and may affect your insurance score.

If you’re having trouble completing an audit or gathering documentation, reach out to us before a deadline passes — we’re happy to help.

General Liability premiums are based on your business’s exposure to third-party claims, not its profitability — which is why auditors ask for gross sales rather than net operating income.

Direct Correlation to Liability Exposure

Gross sales represent your total business activity, which is a better measure of risk than profitability. Higher sales generally mean more customer interactions, product sales, or services rendered — and more opportunities for claims. Net operating income factors in expenses and doesn’t give a clear picture of liability exposure.

Consistency in Risk Assessment

Insurers use standardized, industry-wide rating factors based on gross sales or payroll rather than profitability, which varies significantly from business to business. Two businesses with the same sales volume present similar liability risk, even if their profit margins are very different.

Excludes Variable Business Expenses

Net operating income is affected by rent, utilities, payroll, taxes and other expenses that have nothing to do with liability exposure. A business with high expenses and low profitability can still carry high sales volume — and the liability risk that comes with it.

More Difficult to Manipulate Than Net Income

Gross sales are a straightforward figure. Net income can be affected by tax deductions, depreciation, and other accounting adjustments. Using gross sales keeps the audit a fair, accurate representation of your actual business activity.

Subcontractor & Product Liability Considerations

For businesses using subcontractors or selling products, gross sales reflect total revenue before subcontractor expenses, so the insurer captures the full exposure. If a product turns out to be defective, liability exposure is based on total product sales, not the profit made on those sales.

In short: gross sales are a more reliable, direct measure of business activity and liability exposure than net operating income, which includes financial variables unrelated to liability.

Most contracts asking for General Liability coverage will specify a few things: a minimum coverage limit, that the other party be added as an “Additional Insured,” a Certificate of Insurance as proof, and sometimes additional wording like “Primary and Non-Contributory” or a Waiver of Subrogation.

A typical requirement might read something like “$1,000,000 per occurrence / $2,000,000 aggregate,” which sounds like a lot of jargon packed into one line — but it breaks down into a few simple pieces, covered below.

General Liability limits are usually written as two numbers, like $1,000,000 / $2,000,000. Here’s what each one means:

• Per occurrence limit — the most your policy will pay for a single claim or incident.
• Aggregate limit — the total your policy will pay for all claims combined during the policy period, usually one year.

So with a $1,000,000 / $2,000,000 policy, any single claim is capped at $1,000,000, and your policy won’t pay out more than $2,000,000 total in a year, even if you have several claims.

If your business has employees, most contracts will require Workers’ Compensation coverage at your state’s statutory limits — meaning whatever the state requires, not a specific dollar figure you choose. Contracts often also specify Employers Liability limits, commonly written as $500,000 / $500,000 / $500,000, which cover a different kind of claim than the statutory workers’ comp benefits.

Many contracts also require a Waiver of Subrogation on your Workers’ Comp policy, and some require that any subcontractors you use also carry their own Workers’ Comp coverage.

Adding someone as an “Additional Insured” means they get added to your General Liability policy for the work you’re doing for them. If a claim comes up related to your work — an injury, property damage — your policy can help protect them too, not just you.

General contractors, property owners, and clients often require this because it shifts risk in their favor: your insurance responds first if something goes wrong because of your work.

A Certificate of Insurance is a short, one-page summary of your coverage — what types of insurance you carry, your policy limits, and how long your coverage lasts — without handing over your entire policy. It’s the standard way to prove you’re covered before starting a job or signing a lease.

This phrase means your policy has to pay first on a covered claim, before the other party’s own insurance is asked to contribute anything. It commonly appears alongside an Additional Insured requirement, and contracts often ask for both together.

After your insurer pays a claim, they normally have the right to try to recover that money from whoever else was responsible — this is called subrogation. A Waiver of Subrogation means your insurer gives up that right against a specific party, usually the client or property owner named in the contract.

Sometimes a contract asks for coverage limits higher than what your base General Liability or auto policy provides — say, $2,000,000 when your GL policy only goes up to $1,000,000. An umbrella or excess policy adds an extra layer of liability coverage on top of your existing policies to meet that higher requirement.

Being added as an Additional Insured on a subcontractor’s policy means their General Liability coverage can respond to claims tied to their work on your project — not just claims against them directly. Whether it makes sense for your situation depends on your specific project and relationship with the sub. A few things worth thinking through:

• Does your contract with your own client require you to be able to name additional insureds downstream?
• How much of the project’s risk is this particular subcontractor responsible for?
• Is this a one-time job or an ongoing relationship where a blanket endorsement might make more sense than a per-project one?
• Does being added as Additional Insured affect the subcontractor’s premium or willingness to take the job?

These are things to think through, not a recommendation either way — every project and contract is different, so it’s worth talking through your specific situation with your agent or attorney before deciding.

A Waiver of Subrogation means the subcontractor’s insurer gives up its right to seek reimbursement from you after paying out a claim tied to their work. A few things worth considering:

• Does your contract with your client require you to obtain waivers from your subs?
• Some carriers charge an additional premium to add this waiver — is that cost being passed along, and by whom?
• A waiver only affects subrogation rights between you and that specific subcontractor — it doesn’t change what their policy actually covers.
• Is this waiver required for every project, or only certain types of work?

Again, these are considerations rather than a recommendation — whether a waiver makes sense depends on your contracts and risk tolerance, so it’s worth a conversation with your agent or attorney about your specific situation.