Understanding Your Contractor’s Insurance Coverage
By Ryan Horvath
When you think of hiring a contractor, do you immediately get a pit in your stomach? We can’t say we blame you. We’ve all heard the horror stories of bad contractors and projects gone awry. As the old saying goes, “It only takes one bad apple to ruin the bunch.” Don’t worry though…we’re here to help. We’re discussing contractor vocabulary and insurance coverage in a two-part series. Part one will deal with your contractor’s insurance coverage.
Contractors, by law, must have insurance, but their coverage may vary. Knowing what they’re covered for, as well as yourself, can save you a lot of headaches should something happen. Below, we’ve created a list with the different coverages and what they mean.
Certified or licensed contractors granted a trade license by state and local officials. They must pass tests about business practices and trade skills, pay a fee, and provide proof of insurance and/or bonding.
A registered contractor only needs to show proof of insurance and pay a fee. They may be required to have bonding and rarely have to pass tests. For additional information on being registered, check out International Code Council (ICC) and the National Association of the Remodeling Industry (NARI).
The ICC is dedicated to developing model codes and standards used in design, buildings, and compliance process to construct safe, sustainable, affordable, and resilient structures. Extensive knowledge of the industry, a commitment to professional conduct, and active in the remodeling industry for at least 2 to 5 years are needed to be registered with NARI.
Are you looking to renovate, but have no clue there to start? Check out our “10 Tips for Your Kitchen Renovation” blog!
Bonded contractors have an agreement with a third party. A third party is either a private bond issuer or recovery fund held by the licensing municipality. Homeowners can petition for reimbursement through the third party if the contractor harms them financially. The harm can come in the form of shoddy work or failure to pay subcontractors.
Finally, every contractor should be able to present their Certificate of Insurance. Verify that the contractor is insured, and the policy is current and carries through the length of your project. Most of all, check your home insurance policy. Follow these steps to save you frustration and headaches down the line. There are three different types of insurance:
- Property Damage Coverage – Property Damage Coverage covers property damage and injuries caused by the contractor’s work. This does not cover the cost of repairing or replacing work.
- Worker’s Compensation – Worker’s Compensation pays injured workers for lost wages, medical services, and benefits.
- Personal Liability – Personal Liability covers the contractor through their own insurance agency, not the homeowner’s policy.
In conclusion, knowing your contractor’s insurance coverage is important, but so is knowing your coverage. Before starting any renovation project, be sure to contact your home insurance company and review your policy. Check websites like Angie’s List, the Better Business Bureau, and even Facebook for customer reviews before you meet the contractor. As a result, you’ll be more informed when you first meet the contractor and be able to ask better questions. We’ve included some links with additional information below.