Who Should be Responsible for Contractor Insurance?

Answered by Brett ~ August 21, 2011 ~ No Comments

I had a contractor ask for me to pay for his insurance for a project, is this okay or should I find someone who is already licensed?

Tiffanee K. ~ Columbus, OH

Brett Kulina

Tiffanee, a contractor's license and a project's insurance protection are usually two separate items. Just because your potential contractor wants you to pay for an insurance policy, does not mean that he is an unlicensed contractor. Licensed contractors are registered within the states they work, and usually have to pay annual licensing fees and state taxes, as well as perform to a quality standard of service as outlined by some overseeing entity. Although a licensed contractor may be required to carry some sort of liability insurance for their business and their employees, it is also not uncommon for homeowners to purchase a separate insurance policy, such as a builder's risk policy, to financially protect themselves during a construction project.

I would not discount this potential contractor just because of a line item for an insurance policy in his proposed work quote. Before proceeding any further, you should have the contractor clarify what the costs and other specifics are for the proposed policy, then you can decide if the insurance is truly needed, and if so, why should you bear the additional cost. Perhaps you should also review the details of your home owner's insurance policy, as some policies may cover hired contractors when they are performing work on your house. For many one-time repairs and other small projects, a home owner's policy can be adequate protection for a homeowner, but I definitely recommend purchasing a separate builder's risk policy for any new construction or lengthy remodels. This way if your contractor stops paying his monthly insurance premiums 6 months into a year long project (and 6 months after you last checked out his paperwork), then you would still be financially protected should some disaster occur.

On the contractor's end, I would make sure that your builder has a liability policy that can cover the costs of any disaster, as well as a full workman's compensation policy that covers himself and all workers that will be on the job site. Again, this is where it can pay off to hire a licensed contractor, because some states require licensed contractors to carry higher levels of liability insurance to cover against major negligence. If you are unsure about what type of insurance a contractor in your area should carry, then contact your secretary of state's office and ask them what insurance coverage they consider standard in the industry.

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