Many contractors say they are licensed, bonded and insured. But, what does that mean to you as a homeowner? And how important is it when hiring the right contractor for your home? Let’s break it down:
Licensing means that a contractor has been granted a license to operate within their service industry in a certain location. Licensing requirements are usually dictated by state or local law and vary by state. In Denver, for example, the state doesn't require roofing contractors to obtain a license to perform work. However, some counties in Colorado might require proper licensing.
If a company isn't licensed or registered to do the type of work your project requires in your city, you have little recourse if things go wrong.
Bonding is an additional safety measure for the homeowner from a third party ensuring against poor work done by a contractor or financial distress to the owner over the course of the project related to incompetence. It allows the owner a means of recourse. A contractor can be bonded through a private agency or the local municipality where the company is licensed.
It also ensures that subcontractors will be paid, but not by the consumer, in the event of non-payment.
To receive monetary compensation for an unsatisfactory performance, a homeowner would have to contact the surety company and provide proof that the job was incomplete or that the contractor failed to pay for materials or other obligations that were the contractor’s responsibility.
Bonds benefit the contractor as well, since most people won't hire a contractor who doesn't offer the protection of a bond. Most suppliers and subcontractors will only work with a contractor who has a bond in place as well.
Verifying that your contractor carries the proper insurance is extremely important. Ask to see your contractor's policy and call to verify that the policy is current and covers the value of the work to be done on your project.
Insurance covers different costs than bonding. Bonding protects the homeowner from shoddy work or business practices. Insurance is a liability policy that covers property damage and injury and protects the homeowner from accidental damage that would otherwise be the homeowner's responsibility to repair.
Many states require that contractors demonstrate proof of insurance as part of obtaining a trade license or registering.
Contractor insurance falls into two types:
1. Liability — Covers property damage and injuries caused by the contractor's work. It will not normally pay the cost of repairing or replacing bad work (that's where the bond comes into play).
2. Workers' compensation — Provides payments to injured workers, for lost wages and medical services.
Without these types of contractor insurance, a homeowner could end up paying out of their own pocket if their homeowner's policy is insufficient to cover the bills should a contractor become injured or an accident occurs on the homeowner's property.
How can you check to see if your contractor is licensed, bonded, and insured?
Ask for your contractor's trade license number and proof of bonding and insurance. They should have copies of these documents readily available to you. Make sure all are current and cover your project. Verify the information with your state licensing board: many have an online database you can search or a hotline you can call to make sure contractors' licenses are valid and current. You can also check if the company has ever been disciplined.
Your local 123 Exteriors office follows all state contractor registration and licensing requirements. Below is a list of our registration and licensing information:
Illinois Roofing Lic #104.015461
Wisconsin Dwelling #1169675
Ohio HIC 01765
Pennsylvania HIC #OA062611
New Jersey Lic #13VH05707700
Delaware Lic #2010600700
Missouri Not Required
Iowa Lic #C125590
Colorado Not Required
Licensed: Contractors have been granted a license mandated by state and local laws allowing them to work within their industry in a certain location. It can require passing competency tests about business practices and trade skills, paying a fee and proving insurance and/or bonding. In Denver, the state doesn't require roofers to obtain a license, but some local counties do. It's best to check your specific location for what is required.
Registered: Typically less stringent than licensing, it often requires contractors to prove insurance and pay a fee, only sometimes requires bonding and rarely tests competency. A few places use licensing and registration interchangeably.
Bonded: Contractors have an arrangement with a third party (a private bond issuer or a recovery fund held by the licensing municipality). Homeowners may petition for reimbursement through that third party if contractors harm them financially because of shoddy work or failure to pay subcontractors as promised.
Insured: All contractors you hire should be insured. Ask to see a Certificate of Insurance, then call to verify the policy is current and has enough coverage for your project.