Uninsured contractors may expose unwary homeowners to financial hardship. All responsible contractors should carry appropriate insurance to protect their clients, their employees and themselves. But what insurance should your contractor carry to protect you, the homeowner?

Liability Insurance:
If your contractor is a sole proprietor and has no employees and uses 'independent' subcontractors to do any portion of the work, your contractor cannot purchase Workers Compensation Insurance. To protect yourself, you should insist your contractor and/or his or her independent subcontractors carry Liability Insurance. This insurance coverage protects you if your property is damaged, or if the contractor or subcontractors is/are accidentally injured during the course of the work. Proof of your contractor's liability insurance helps you substantiate that this contractor operates as an independent business person and is not your employee. Therefore, you are not responsible for injuries, pain, suffering or lost wages provided the injuries were not caused by you.

Get a copy of your contractor's and any subcontractor's Liability Insurance. Make sure the policy's effective dates are current and that the policy dollar coverage is sufficient to cover any potential claims for injuries or damages. Be sure the insurance certificate covers the period the workers will be on the job.

It is reasonable to expect that professional contractors who carry all the appropriate insurances will have greater business overhead expenses and that their bids will be a bit higher than those from workers who take business shortcuts. However, it's a small price to pay to hire the right person for the job and forego the risk of exposing yourself, your financial future and your home to someone who is improperly insured or uninsured.

Workman's Compensation Insurance:
Workman's Compensation pays medical bills and lost wages to any or all employees of a company who are injured while working on your house. Only Corporations or employees of companies are covered by Workers Compensation Insurance. If your contractor's business is incorporated then everyone in that corporation must be insured by Workers Compensation Insurance. If a contractor should, but does not have Workers Compensation Insurance for his or her employees, the law exposes you, the homeowner, to litigation by the injured party. Homeowners increase their risk of exposure if:

a) the homeowner takes out the building permit for the work to be done;
b) the homeowner pays the contractor by the hour;
c) the homeowner supplies or loans the tools and materials to get the job done;
d) the homeowner gives directions on how to perform the job.

If any of the above conditions apply, the homeowner may, in the event of a lawsuit, be found to be acting as their own general contractor and could be responsible for anything that happens to the sub-contractors or their employees during the course of their work.

If your contractor tells you that he or she has Workers Compensation, get a copy of the certificate of the insurance policy before the job begins. Keep this document with your written contract and other important paperwork pertaining to your project.