Dear Angie: What are the risks if I hired a remodeling contractor who is not bonded or insured? — M.K., Santa Maria, Calif.
Answer: Hiring a contractor who is not bonded, insured — and licensed, if applicable — is a risk you don't want to take.
Let's talk about the importance of insurance first.
Contractors should carry two types of insurance: liability and worker's compensation. As a homeowner, these protect you in two ways.
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First, liability insurance will protect you if the contractor causes damage to your home. What if, say during an upstairs bathroom remodel, your uninsured contractor was doing work that caused the bathtub to crash through the floor? If you think your homeowner's policy would cover you, think again. It probably won't, unless you've purchased additional coverage for in-home employees.
What if the contractor had an employee on the job at your home who was injured on your property, but the contractor didn't carry worker's compensation insurance? Your homeowner's insurance policy might help cover the cost to pay that worker's claim, after you meet your deductible, but that claim could result in an increase in your rates and make it more difficult for you to get insured in the future.
Bonding is often confused for insurance, but there is a notable difference. A bond is intended to act as a guarantee that the contractor will perform the work as he or she is supposed to. It is secured money that would be distributed to the homeowner if the contractor failed to perform as he or she should.
For example, it would be applicable if a plumbing contractor failed to perform a pipe repair adequately and caused a leak that went undetected and caused damage to the home. Or, if a company employee stole personal items from your home, the bond would cover that loss. Don't take a contractor's word that he or she is bonded. Ask for proof and be sure you understand exactly what the bond covers.
Finally, you want to make sure your contractor holds the appropriate licensing, if it's needed. Check with your local licensing authority and, if applicable, ask for a copy of the license. Licensing offers proof that the contractor has met certain industry training standards and is allowed to do the work in your area.
Hiring an unlicensed contractor could cost you big. If the work does not meet local building codes or the contractor doesn't pull the necessary permits (which an unlicensed contractor cannot do), you will be responsible for making the repairs to meet code. Allowing work to be done by an unlicensed contractor could void your homeowner's insurance policy, should a claim arise as a result of that work.
It might be appealing when comparing the estimate of an unlicensed, uninsured and non-bonded contractor to one who has those credentials. Licensed, bonded and insured contractors usually charge more than those who haven't earned the credentials or paid for the insurance protection.
I like to look at it this way: If a contractor doesn't follow the law (or good business practices) in being licensed, insured or bonded, what else is he or she cutting corners on? If something goes wrong, it's you who will be paying the price.
My advice is to save yourself the stress and risks involved with hiring cheap, unqualified help. Hire a contractor who you know has earned the credentials of his or her trade and follows good business practices. You'll have a much better chance of seeing your job done right the first time.