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Uninsured vs. Insured Contractors: Everything You Need to Know

Written by Posted On Monday, 09 December 2019 15:49

When browsing through websites and advertisements for home renovation and remodeling services, you can often find the words licensed and insured somewhere on the page. If you’re new to shopping around for contractors, these terms are what you should be looking for.

The best and most reliable general contractors and subcontractors out there are mostly licensed; moreover, the carry proper and adequate insurance policies, especially general liability insurance for contractors.

But what does licensed and insured mean exactly?

The state or the local government are the ones to issue contractors' licenses. For contractors to obtain a license, they have to pass tests, submit the requirements, and have proper insurance coverage. In the most basic sense, this document signifies that the contractor or contracting business has reached the standard level of competence for a particular state.

On the other hand, insured means the contractor has appropriate insurance coverage to protect the business and handle liabilities in case of property damage and other perils that may happen while completing and related to the project. When a contractor carries adequate insurance, the insurer assumes responsibility in the event of a claim.

Risks of Hiring Uninsured Contractors

Hiring an uninsured contractor may save you money on the onset, but also comes with significant risks that homeowners need to be aware of. Let us discuss some of these risks.

  1. They may not be able to pay for property damage or faulty work.

If the contractor you hire has insufficient or no insurance in force, they may not have the financial means or capacity to pay for claims and compensate for shoddy work. If they end up not doing the job to the expected standard or cause damage to your property, there's a possibility that you may not get paid or recover the losses.

  1. They're likely NOT to have a Workers' Compensation Insurance.

Injuries and accidents are common in a construction site. Crew members can get hurt and sustain bad falls anytime.

If an uninsured contractor or one of the crew members gets hurt while working on your property and there's no workers' compensation insurance in place, you can end up footing the medical bills and paying for lost wages. Worse, they can sue you for bodily injuries.

  1. You may be held liable for the damage they cause.

As they’re working on your property, you may be held legally responsible for any damage they cause to someone else’s property or belongings.

  1. A subcontractor may place a lien on your property.

In cases where the contractor fails to pay the subcontractors on time or as agreed and there’s no insurance to handle it, the subcontractors that were hired to help/work on the project can file a lien on your property.

License and insurance are two excellent ways to qualify contractors. The logic behind this is simple. Contractors who care for the security and credibility of their business are both licensed and insured. Having a license and adequate insurance also implies that they won't run away from mistakes or responsibilities, as this could have their permits revoked.

It’s true that licensed and insured contractors generally charge more than their unlicensed and uninsured competitors, but you can be assured that they’ll complete the project to your satisfaction. In case something goes wrong, there won’t be any burden on your part because they have the right insurance policies to handle the claims. The price difference is a worthwhile expense for peace of mind.

A Word to the Wise

Licensed and insured is an essential phrase to look for when hiring a contractor for a home renovation or remodeling project. As most homeowners insurance expressly exclude coverage for damages caused by uninsured contractors, choosing to work with a construction company without the right insurance coverages could potentially cost you everything you’ve built and worked hard for.

Sure, hiring an uninsured contractor will save you a few dollars in the short term, but are the accompanying risks really worth it?

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Rachel Porter

Rachel Porter is the Content Specialist for Custom Contractors Insurance, LLC, an Arizona roofing and contractors insurance company. When not writing, she enjoys reading and mountain biking with her friends.

https://affordablecontractorsinsurance.com/

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