Don’t skimp: Hire a contractor who is licensed and insured

Unless you are calling in a pro for a simple job changing a light bulb, a license will be required.

Choosing a contractor is hard, but one mistake that many homeowners make is hiring a contractor that is not licensed, bonded and insured. Requiring your contractor to provide you with a copy of their license and a current insurance policy will provide you not only with peace of mind, but could potentially save thousands of dollars if an accident occurs on the job.

License and Bond

Requirements vary by state and in some cases, by city so check you local regulations regarding licensing, bond and insurance requirements for contractors.

As an example, a contractor operating in New York City is required to carry a license if they are providing work that is valued at more than $200 so unless you are calling in a pro for a simple job changing a light bulb, a license will be required.

Ask your contractor to see their license before they start on the job and check that the license is up to date and current.

Bond requirements will also vary from state to state. If your state requires a bond, and it should, ask your contractor to provide you with their bond number and certification. A reputable contractor will be happy to provide this information.

A bond protects you in the event a contractor does an insufficient or poor job, quits the job abruptly or ends up not completing the job for any reason. It can also protect you in the event the contractor doesn’t pay for their supplies or doesn’t pay their employees while they were working on your job. Finally, it can also provide reimbursement in the event someone steals your property while on the job.

Contractors and Insurance

Just as important as a license and bond is the proper insurance. A contractor who is not carrying the proper insurance can leave you on the hook for the medical bills of their employees if they are hurt on the job.

A general contractor should carry at least two types of insurance, general liability and workers compensation.

General Liability: Liability insurance will cover the cost of any damages your contractor or his employees do to your house. This type of damage is not covered by a typical homeowners policy. Damage to a home by a contractor is not as uncommon as you think. Ladders falls, equipment tips over and waterlines can be severed, resulting in extensive and expensive repairs.

If your contractor is not insured, you could end up having to cover the costs of replacement or repair costs.

Ask your contractor to provide you with a certificate of insurance that names you as an “additional insured.” Ask your insurance agent to review and confirm coverage before your contractor gets started. If your contractor is reluctant or unable to provide you with a certificate of insurance, it’s best to find a new contractor.

Workers Compensation: Just as important is workers compensation coverage. If your contractor or one of their employees is hurt on your property while on the job and your contractor is not carrying workers compensation, you can end up being held liable.

While your homeowners insurance will often step up and cover these types of claims, you will be responsible for the deductible, any damages over your policy limits, and there is a good chance your insurance rates will be headed up.

Ask your contractor to see a current certificate of coverage for workers compensation before they start and make sure the coverage dates are in force for the entire renovation period.

In most housing markets, an unlicensed contractor will be cheaper but in the long run using an unlicensed and uninsured contractor can end up being much more expensive.