Consumer advocates say you should hire repair and remodeling contractors who are “licensed, bonded and insured.” What do those terms mean? And why are they important to you as a homeowner?
Triple protection
These three provisions protect both the consumer and the contractor.
State law often requires licensing. Electricians and plumbers, for example, are required by law to have systematic training and pass state-sanctioned exams to practice their trade legally. Some jurisdictions may require contractors to have a business license as well. Licensing by an authorizing body means the contractor has met competency standards in his industry.
Contractors purchase bonding to pay for any deficiency, negligence, or failure to care for the customer. In other words, the bond protects the contractor’s customers. There are different types of bonds.
Surety bonds ensure the contractor completes contracted work, follows laws and regulations, pays his employees and subcontractors, and ensures responsible work is done.
Fidelity bonds insure against fraudulent acts such as theft from the consumer by the contractor, its employees, or its subcontractors.
Bonding protects you as a consumer in several ways. If a contractor does not live up to the work promised, bonding pays to have the work completed. If the contractor does not pay his employees or subcontractors, they may file a lien against your property, but bonding will settle those claims. If an employee steals from you, bonding pays for the loss.
Insured means that the contractor has various types of liability insurance protecting the consumer and the contractor from loss. If a contractor’s employee gets injured working on your home, the contractor’s insurance pays for his care, not your homeowner’s policy. If a contractor’s equipment or tools are damaged or stolen, his insurance pays, not you or your insurance.
Hire contractors who are licensed, bonded and insured
All three of these provisions protect you when hiring a contractor to work at your home.
You should get referrals for reputable contractors from trusted sources, obtain bids for the intended work from at least three contractors, and get copies of their licenses, bonds and insurance to document that you and the contractor are covered.
Related – How to Hire and Work with a Contractor
