Contractor bonds are a type of insurance but they should not be confused with liability insurance or workers compensation insurance. In many states and local municipalities contractors are required to be bonded in order to get their contractor’s license or registration. Contractor bonds are not only beneficial for homeowners, but for the contractors too. Bonded contractors are much more appealing to homeowners and most contractor suppliers and subcontractors will only work with bonded contractors.
Contractors purchase bonds from surety companies, which are essentially insurance companies. Contractors pay yearly premiums to keep their bonds in place. The more claims that are submitted against a contractor’s bond by homeowners, suppliers and subcontractors the higher their premiums will go just like car insurance for example.
So how exactly do contractor bonds protect homeowners? Well let’s say you hire a contractor and a few days into the job the contractor stops showing up or you have a dispute over something that wasn’t completed as originally agreed. You would file a claim against the contractor’s bond, provide proof like the original agreement, photos of the job site with work uncompleted, etc. The issuing surety agency will investigate and then provide you with full monetary compensation for the failed project. Many homeowners don’t realize that a contractor’s bond also protects them from being left with unpaid supply bills and subcontractors. In addition, contractor bonds also cover damages to the home and other property and theft that result from a contractor’s negligence.
More often than not, contractors are required to be bonded in order to qualify for a contractor’s license. Since this requirement varies from state to state – and city to city, your duty, as a homeowner is to verify that that the contractor you’re thinking of hiring is both licensed and bonded to ensure that the job will be completed according to your expectations and the jurisdiction’s requirements.
As a homeowner, you should ask any contractor you’re thinking of hiring if they’re bonded and to provide you a copy of their Certificate of Bond Coverage and always check that the bond is up to date.