When you hire contractors, electricians or other home repair specialists, you may shop around on price and go with the least expensive one. But if a contractor comes in with a bid that is much lower than the competition, it could mean they are cutting corners – and one of the top ways for them to do this is in the insurance they carry, or are supposed to carry.Consider these scenarios:
- An electrician’s faulty work starts a fire that guts your kitchen and dining room.
- A contractor’s worker breaks a leg while working on your home.
If either of these events occurs and the contractor doesn’t have insurance, you’ll be on the hook for the damages. Even if a contractor tells you they are insured and bonded, you need to verify that it’s true. After all, they could be stretching the truth by just having their vehicle insured, and they could be bonded for another project they have worked on in the past.
While your homeowner’s policy provides some liability coverage, it may not cover all the costs in an especially costly event. The first thing you should do when hiring a contractor is to ask to see their certificate of insurance. If they don’t have it, they can call their insurance agent and ask them to send it to you. A certificate doesn’t provide all the insurance details, but it’s a good start.
However, if you are having major work done on your home, you need to delve further. You should look for the following:
Coverages on certificate of liability insurance
Current dates – Check to see that the coverage is current. If it’s past the policy expiration date, then it doesn’t tell you if they currently have insurance.
General liability coverage – The contractor should have this insurance, which covers bodily injury to you or third parties and property damage arising out of their operations. Check also to see if their coverage includes “products and completed operations,” which covers damages that may arise out of their finished work. If this is not included, then the contractor’s liability ends when they finish the job.
Workers’ compensation – This coverage is mandatory for all employers, except under very rare circumstances. It covers medical expenses and lost wages if an employee is injured on the job. If the contractor doesn’t have this coverage, you could be on the hook for these costs.
Sometimes small contractors will tell you that they don’t need to have it, but that is typically true only if they have no employees and it’s a sole proprietorship.
Other coverages to look for
Builder’s risk – If you are building a new home or adding onto your home, this provides protection for the new construction and building materials while it is being built. While most contractors will buy this coverage, some of them will ask the homeowner to do so. Make sure you are clear who should buy this coverage and, if it is the contractor, make sure you ask for proof that it’s been purchased.
Fidelity bonds – The most common type of bond you could encounter provides protection if a contractor’s workers steal from you. While better than nothing, actually getting paid from these bonds can be somewhat difficult. It’s probably a better bet to lock up or remove your valuables when contractors are working in your home. Although you have hopefully picked a contractor you trust, he or she is probably not going to be the only one that enters the job site.