How to start an HVAC business: licenses, insurance and bonds

How to start an HVAC business without stalling at the license desk

Most startup checklists put "get insured" near the end, after the logo and the website. That order fails in a lot of states. The board that issues your contractor license often wants a certificate of insurance or a bond in the file first.

So treat insurance as part of licensing, not an afterthought. General liability is the policy that pays for injury or damage your work causes to other people. Bind the right one early, and the license, the permits and the first contract all move faster.

This guide follows the order the paperwork flows. Credentials, company and coverage come first. Then come the growth steps: the first van, the first W-2 tech and the first general contractor (GC) contract.

How HVAC licensing works: three patterns

HVAC licensing is not national. It follows one of three broad patterns, and your pattern decides which insurance documents you need first.

Statewide license with insurance minimums

Some states write a liability floor into the license itself. Texas splits air conditioning and refrigeration contractors into Class A and Class B. Class B is capped at systems of 25 tons of cooling or 1.5 million BTU/hr of heating.

For Class A, the state floor is $300,000 for each occurrence, with a $600,000 general aggregate and a separate $300,000 aggregate for products and completed work. The Class B floor is a third of that: $100,000, $200,000 and $100,000.

In Texas, you file proof of insurance with the state when you apply. Read our Texas HVAC contractor insurance page for that state's details.

Ohio works the same way. Once you pass the exam, the Ohio Construction Industry Licensing Board needs proof of at least $500,000 in contractor liability coverage. Only then does it issue the license. The license and the policy both have to sit with one contracting company. See HVAC contractor insurance in Ohio.

Statewide license with a bond

California licenses HVAC firms under the C-20 class. It covers warm-air heating, ventilating and air-conditioning work.

The state board requires a $25,000 contractor bond before it issues the license. An LLC license also needs at least $1 million of aggregate liability cover if five or fewer people are listed on it.

Local licensing

Other places leave mechanical licensing to cities and counties. In Denver, for example, a contractor license is a two-step process. You first hold a supervisor certificate, or employ someone who does, and then apply for the contractor license. The residential-only heating and ventilating supervisor certificate (Class B) calls for six years of experience: four as a journeyman and two as a designer, draftsman or supervisor. The Class A certificate, which adds commercial work, calls for eight.

Rules change, so confirm the current requirement with your state board or city licensing office before you file. We can't give licensing advice, but we can match your coverage to what the office asks for.

What goes in an HVAC business plan (including the risk section)

An HVAC business plan is a working document, not a school project. A bank, an equipment lender or a surety will read it, and so will you in your second slow shoulder season. Keep it to a few pages:

• Services. Residential service and change-outs, light commercial rooftop units (RTUs), ductless installs, maintenance agreements. Say which ones you'll do in year one and which ones wait.
• Market. The towns you'll cover, the drive times, and who already owns the no-heat calls there.
• Pricing. Your flat-rate or time-and-material method, your service call fee and your maintenance plan price.
• Startup budget. Van, tools, first parts stock, license fees, insurance deposits and three months of cash.
• Financing. What you're putting in and what you need to borrow.
• Risk and insurance. This is the section most templates skip.

A good risk section lists each policy you'll carry, its limits and when it starts. It names the license class you're applying for and the insurance or bond that class requires. It says when you plan to hire, and how you'll handle comp and payroll records. It also lists the records you'll keep on each job, from permits and start-up sheets to refrigerant logs and signed contracts.

Sureties weigh your capital, your capacity and your character when they decide how much bonded work you can carry. A plan that answers those questions up front makes the first bond request easier.

HVAC company startup paperwork: when each piece is due

A license bond protects the public and the agency that requires it, not you. When the surety pays a valid claim, the indemnity agreement you sign to get bonded lets it come back to you for repayment.

One large online insurance marketplace puts license bond premiums anywhere from 1% to 15% of the face amount. Owners with strong credit tend to land near the low end, around 1% to 3.5%.

What you pay depends on your payroll by class code, your annual revenue, your mix of installation and service work, residential versus commercial jobs, the vans you run, your claims history and the limits you pick.

For ranges by policy, see how much HVAC insurance costs. For the bond side, see HVAC contractor license bonds.

Your first van: commercial auto and a tools floater

Many owners start in their own pickup with magnets on the doors. That works until a claim. A personal auto policy is rated for commuting and errands. Many of them cut back or drop coverage once the vehicle is used for work. Check yours before the first service call.

When the van is in the company's name and runs service calls, it belongs on commercial auto insurance for HVAC contractors.

The auto policy usually covers equipment bolted to the van, like the ladder rack and shelving. Loose gear inside it is a different story. Your recovery machine, micron gauge and vacuum pump usually need their own cover. That's inland marine coverage, often called a tools floater.

See HVAC tools and equipment insurance for how scheduled items and theft-from-vehicle terms work.

If a tech ever drives a personal car to pick up a part, ask about hired and non-owned auto coverage. It covers your company's liability for that trip. It doesn't repair the tech's car.

Get a quote for your HVAC business →

Your first tech: workers' comp starts on day one

Hiring your first W-2 tech is the point where many states make workers' comp mandatory. The rules differ, so check yours with the state comp agency:

• California requires comp for every employer, even with one employee. C-20 license holders go further: they must keep a comp certificate on file with the state board and can't claim the no-employee exemption.
• Florida requires it for construction employers with one or more employees, part-time included.
• Texas lets most private employers choose. Those that opt out must notify the state and lose some defenses if an employee sues.
• Ohio comp comes only from the state fund, the Bureau of Workers' Compensation. Private carriers can add stop-gap employer's liability.

Carriers rate comp on each $100 of payroll, sorted by job class. Across most NCCI states, HVAC installation and service fall under class 5537. Your carrier assigns the code, and an audit after the policy year settles the final premium.

Read workers' comp for HVAC contractors before you post the job ad.

Your first GC contract: what the paperwork will ask for

The first subcontract from a builder or mechanical GC is where a starter policy often comes up short. The insurance section of that contract usually asks for more than your license did.

Expect requests like these:

• Limits. Plenty of small contractors carry $1 million each occurrence with a $2 million aggregate. Larger jobs may want more, often met with an umbrella.
• Additional insured. The GC asks to be added to your policy so it can lean on it when a claim traces back to your install.
• Waiver of subrogation. Your carrier agrees not to pursue the GC after paying a claim.
• Primary and non-contributory. Your policy pays before the GC's own policy does.

Each of those usually takes an endorsement on your policy, not just wording on a certificate. Our guide to certificates of insurance for HVAC contractors explains each request.

Two other coverages show up on new-construction jobs. Completed operations covers damage that shows up after you finish and leave. It's built into most general liability policies and draws from its own aggregate. An installation floater covers the condensers, air handlers and line sets you're putting in. It protects them while they sit on site, until the job is accepted.

Example scenario: a two-truck shop signs its first subcontract for a 12-unit townhome build. The contract asks for $1 million per occurrence, additional insured status for the GC and a waiver of subrogation. The shop's policy has the limit but no blanket additional insured endorsement. The GC holds the first draw until a corrected certificate arrives. Asking your agent for the contract's insurance page before you sign can avoid that delay.

Read the general liability guide for HVAC contractors to see what a standard policy includes before you sign.

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