How to Use a Contractor With No Insurance

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In an ideal world, every contractor would carry general liability and workers' compensation insurance. These policies protect you if the contractor damages your property – or worse, hurts someone – while working on your home. But what if a contractor has excellent skills and his work ethic is unbeatable, but he just doesn't have proof of coverage? While it's possible to hire an uninsured contractor, the better question is: Should you?

What Could Possibly Go Wrong?

There's no nice way to say this, so let's get to it: Hiring an uninsured contractor could open you up to a world of pain. Here's why:

If a contractor or subcontractor is hurt while on your property, then you could be sued for all his lost wages and medical bills. Workers' compensation insurance would normally cover these expenses – but there's no coverage in place.

If the contractor is negligent, and your home is damaged, then you can't make a claim on the contractor's liability insurance because there is none. You could sue the contractor personally – but what if he has no money?You could be putting your own insurance policies at risk.

Does your homeowner's insurance allow you to let uninsured contractors loose on your home? What about your mortgage company or your housing association? You could run into some serious trouble if you violate the conditions of these documents. At the very least you could be pushing up the price of your premiums if you have to file a claim on your homeowner's policy.

The takeaway here is that contractors without insurance generally work much cheaper because they are not paying any general liability or workers' compensation premiums. But ultimately it is you, the homeowner, who assumes the risks for their mistakes.

Now you've swallowed the reality pill, let's take a look at your options.

Take Cover Before the Work Begins

By far the best option is to insist that your contractor purchases coverage. Generally, he needs two types of insurance:

  • General liability, which covers any damage he does to your home.
  • Workers' compensation, which covers you if the contractor or any of the subcontractors get injured on the job.  

You can contribute to the cost of insurance if you wish, but make sure you're saving more on the cost of the job than you'd be spending on the insurance coverage!

Ask to see proof of coverage before the work begins. If the contractor is not prepared to buy coverage, treat that as a red flag – if he won't spend a few hundred dollars on insurance now, is he going to pay for the damage he causes later?

Use a Homeowner Liability Waiver Form

A Waiver of Liability form is a legal document where the contractor promises not to sue you if something goes wrong. This form doesn't really help if the contractor hits a pipe and floods your basement, but it can stop the contractor from suing you if he gets injured on your property. You'll need a separate waiver release from every single subcontractor and tradesperson who works on your home.

There are plenty of free templates available online if you want to go down this route. The wording is fairly standard – just make sure there's an assumption of risk, which means the contractor agrees to take the risk of injury; a waiver of your liability; and a promise by the contractor not to sue you.

Do a Thorough Background Check

What about those small, low-risk jobs where the potential losses are small? If you're prepared to put your hand in your pocket if anything goes wrong, then a thorough background check may be enough to convince you that the contractor is worth hiring. Check her references carefully and speak to former customers about the contractor's working practices. Is she organized and diligent? Does she care about safety?

Remember to check the contractor's licenses. In some states, your contractor may not need a license to do the particular work you need. But if it's a requirement, then your contractor should have the correct paperwork. Your state contractor's board website tells you what licenses a contractor needs and whether there are limitations on the type of work she can do.

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