How to ensure your contractor is bonded and insured

Heather Larson

"Bonded and insured." You've seen this phrase on contractors' websites and in Yellow Pages ads. But do these words mean that if you hire this contractor, you will be protected from shoddy, unsatisfactory or incomplete work? The answer might surprise you.

In 2011 the Federal Trade Commission received more than 13,000 home repair-related complaints. For the past five years contractors have ranked No. 1 in consumer inquiries to the Better Business Bureau, a nonprofit organization that collects and provides free business reliability reviews on more than four million businesses.

bonded and insured contractorsHomeowners are most likely to encounter scams after a catastrophe or severe weather event like a hurricane. These fraudulent service providers go from door to door, offering to fix your roof, driveway, or whatever was damaged by the extreme weather. Then they ask for money upfront to pay for the supplies they need. A small portion of the work gets done and then the contractor disappears. He can't be reached by phone and you never see him again. However, these fraudulent contractors can strike at any time, and often elderly people are their prime target. In October 2013, 42 elderly people in Fresno, Calif. lost thousands of dollars to three conmen, who offered to repair their homes, took money upfront then never completed any of the repairs.

Homeowners should request evidence that a service provider or contractor is bonded and insured. But how can you be sure that the contractor you're hiring is legitimate and will get the job done?

Understanding what bonded, insured and licensed really means

If a contractor is "bonded", it means that you are financially protected if the contractor doesn't complete a job for you, or the job is poorly executed.

Insurance, on the other hand, covers any liability claims that may arise during a job. For example, if a builder falls off a ladder while painting your home, his company's insurance will cover any claims and you won't be liable.

Jeremy Schaedler, president of Schaedler Insurance & Bonding Services in El Dorado Hills, Calif., says that contractors who can prove they have a bond and insurance should be the ones you hire. They've gone to the trouble to make sure they are operating in a legal and ethical way.

"However, unethical contractors who carry these credentials still exist," Schaedler says.

Many state agencies require building contractors to obtain a bond before they will issue them a license. However, not all industries or jurisdictions require a bond, says Katherine Hutt, spokeswoman for the Better Business Bureau BBB).

"However, if the contractor is bonded, whether it's required or not, you have more peace of mind and know the business is more established and you're more likely to be treated fairly," Hutt says.

If the contractor says he is insured, you should ask the following questions about his coverage:

  1. Does the contractor's insurance cover his workers should they become injured?
  2. Does the contractor's insurance cover you, your family and any visitors to your home if they are injured on the work site?

How to find a bonded and insurer contractor

In order to find a legitimately bonded and insured contractor, you should start by reading reviews on the Better Business Bureau website.

"When a business applies to be a BBB Accredited Business, they must supply proof that they meet all licensing, bonding, and insurance requirements for the jurisdictions where they do business," Hutt says.

Even if the individual or company you plan to hire looks legitimate on the BBB website, homeowners should still ask them for proof that they have the necessary licensing, bonding and insurance. Licensing entities vary state to state. For example, in California, you can visit the Contractors State License Board to see if the contractor you have in mind has an active license, or any current bond or pending violations on that license.

Angie's List, an online membership service that compiles consumer ratings of local service companies in multiple cities across the United States, says that consumers should ask for a contractor's bond number and certificate of insurance to determine if your contractor is legitimately bonded and insured.

A good contractor won't mind providing any of this information, Hutt says.

Tips for choosing a bonded and insured contractor

Homeowners need to watch out for dishonest contractors who might also be fraudulent and disappear after only doing a small portion of the work. The following five tips, Hutt says, should ensure that you get a legitimate worker and that the job gets done correctly.

  1. Check out the BBB Business Reviews at
  2. Ask for references from friends or neighbors who have had similar work done.
  3. If possible, talk to past customers of the business to find out what kind of experiences they had.
  4. Secure three bids if you are getting a big job done, such as getting your roof replaced.
Make sure everything is in writing, and read the fine print.

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