GENERAL LIABILITY

While it is important to have liability insurance, there is no legal amount of coverage you must have to operate within the legal guidelines of your license as a contractor. If you do residential work your customers are less likely to ask for proof of insurance than if you deal with more savvy commercial clients.

No penalty for underestimating at the time your estimated premium is quoted. You'll pay based on the minimum premium stated when you buy the policy, increased by payroll or gross receipts you report at each audit period.
The annual premium can be based on either payroll or gross receipts. If the premium is based on payroll the company will consider any payroll you have pay to a payroll service. If your rate is based on gross receipts the company considers a total of everything, including subcontracted costs, material, etc. The final price is subject to audit. The company can readjust the final price if your gross receipts or payroll have changed from your initial estimate.
Most common types of coverage written in California are:

FULL OCCURRENCE
Under the full occurrence form you have coverage for claims which occur during the policy coverage period yet may not be discovered for years later.

MODIFIED OCCURRENCE
and CLAIMS MADE. Under Claims Made, the policy will cover you for claims reported during the specified time limit defined in the policy. Usually the policy will exclude coverage for events, which occurred prior to policy inception. You have a limited time after the conclusion of the policy to purchase "tail-on" coverage, which will extend the reporting period for another year.