The Difference Between Licensed, Bonded and Insured Contractors

 By: Leeanne Kunnert
What exactly is the difference between a contractor that is licensed, one that is bonded and/or one that is insured? Competition in the construction industry is brutal. Wading through contractors to determine the most qualified individual at the most reasonable price leaves many consumers baffled.

Where can consumers skimp and where shouldn't they when it comes to hiring contractors? Is hiring a contractor that is not licensed, bonded and/or insured worth the risk? Probably not; in fact many consumers employing contractors without the proper credentials in place are placing their time, money and project completion in jeopardy.

Below we will detail bonded, licensed and insured contractors. This will allow consumers to have insight into why each is an important certification for hired contractors to have.

Licensed: Contractors are licensed as either a general contractor or specialty contractor. Specialty contractors are those that offer a specific skill such as plumbing, electrical, drywall and the likes. Specialty contractors are required to hold a special certification on top of their license. The contractor's license number is required to be displayed on any posted marketing materials.

Consumers are able to search for contractors by name or license number to ensure that the contractor's license is up to date. When an unlicensed contractor takes off after receiving a deposit there is little protection offered to the consumer this is one of the drawbacks of hiring any unlicensed contractors to do work for you. An unlicensed contractor may cost less initially but there is no recourse if work is not done in specification to the contract.

Bonded: Bonds are purchased by contractors looking to prove their stability to consumers. There are a variety of bonds that contractors can purchase to ensure they are trust worthy. A bond is a contract between the contractor, the property owner and the bonding company. It ensures that the contractor has financial backing in case the project is not completed as stated in the contract. Common bonds that many contractors have are bid bonds, performance bonds and payment bonds. All of which cover consumers from contractor negligence.

Insured: Contractors are required to have insurance to cover their business. General liability insurance is purchased by contractors to insure that any damage to the property or people is covered financially if anything should happen while completing work at your location.

There are a few more things to consider when hiring a contractor. Make sure that the contract is comprehensive and that no detail has been left out. The contract should include the bid and scope of work expected to be performed. It needs to offer an estimate on the price of permit fees as well as the payment terms, warranties and procedures for changes in the contract. Often it pays to contact consumers that have recently used the contractor's services to discuss the contractor's ability to complete the job on time, within budget and so on.
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