An Insurance Agents Guide For Homeowner’s Hiring a Contractor

1.Verify the Contractor’s Business License

Before hiring anyone, confirm the contractor is operating legally.

Why It Matters

A valid business license shows the company is registered with the state or local municipality and is authorized to conduct business.

What to Do

• Ask for:
• Full legal business name
• Business address
• EIN or business registration number
• Search online through:
• Your Secretary of State website
• City or county licensing department

Red Flags

• Business name doesn’t match paperwork
• Recently formed company with no history
• Suspended or inactive business status
• Multiple Business with similar names filed with the state performing similar work

2.Verify the Contractor’s State Contractor License

A business license is NOT the same as a contractor license.

Most states require contractors to hold a specific trade license for:

• General contracting
• Roofing
• Electrical
• Plumbing
• HVAC
• Concrete
• Remodeling

Why It Matters

Licensed contractors are generally required to:

• Meet experience standards
• Pass examinations
• Carry insurance
• Maintain bonding
• Follow state regulations

What to Check

Search your state contractor licensing board online and verify:

• License number
• License classification
• Expiration date
• Complaint history
• Disciplinary actions
• Active status

Important Tip

Make sure the license classification actually matches the work being performed.

Example:A handyman license may not legally allow major structural remodeling or roofing work.

3.Request a Certificate of Insurance (COI)

One of the biggest mistakes homeowners make is simply accepting a contractor’s word that they are insured.

Always request a Certificate of Insurance (COI).

Even More Important:

Request the COI DIRECTLY from the contractor’s insurance agent.

Do not accept a screenshot or photocopy from the contractor alone.

Why?

Fake insurance certificates are more common than most homeowners realize.

Receiving the COI directly from the insurance agency helps confirm:

• The policy is active
• Coverage limits are real
• The contractor is actually insured
• Policies haven’t been canceled

4.Ask to Be Added as an Additional Insured

For any project, ask the contractor’s insurance agent to issue an:

Additional Insured Endorsement

This endorsement extends certain liability protections to you as the homeowner during the project.

Why It Matters

If there’s:

• Property damage
• Injury claims
• Lawsuits related to the contractor’s work

…the contractor’s insurance may help defend and protect you.

Primary Wording

This endorsement means the contractors insurance will pay first in the event of a claim.

Waiver of Subrogation

This endorsement means the insurance company will not try to subrogate or sue you in the event of a claim that is somehow your fault. This limits your exposure to the insurance company seeking to recoup legal expenses because of a claim.

Request It Directly from the Insurance Agent

Have the agent email you:

• COI
• Additional Insured Endorsement

This creates a documented paper trail and reduces the chance of fraud.

5.Verify Workers’ Compensation Insurance

If a worker gets injured on your property and the contractor lacks workers’ compensation coverage, you could potentially face liability exposure.

Ask For:

• Workers’ compensation certificate
• Policy number
• Insurance carrier

Important:

Even if the contractor says:

“Everyone is a subcontractor”

…you should still verify coverage for the subcontractors if they are hurt on your jobsite they can sue the homeowner to recoup medical costs. Some states allow exemptions for subcontractors however you can contractually require it still. Just because the state says its ok for them to sign an exemption you can still require work comp. Imagine getting a roof replaced on your home and someone falls from the second story of your home. Do you want the injured worker to have coverage thru their employer or your bank account?

6.Check the Contractor’s Bond

Many licensed contractors carry a contractor license bond.

What Is a Contractor Bond?

A bond is a financial guarantee that helps protect consumers if the contractor:

• Violates licensing laws
• Fails to complete obligations
• Causes financial harm through misconduct

How to Verify

Check with:

• State licensing board
• Surety company
• Bond number verification

Important Note

A license bond is usually limited in coverage and may not fully protect your project costs.

7.Consider Requiring a Performance Bond

For pools, large remodels, custom homes, additions, or high-dollar projects, homeowners should strongly consider requiring a:

Performance Bond

What Is a Performance Bond?

A performance bond guarantees the contractor will complete the project according to the contract terms.

If the contractor:

• Walks off the job
• Goes bankrupt
• Defaults on the contract
• Fails to complete the work

…the surety company may step in financially to help complete the project.

Why It’s Worth Considering

Many homeowners spend:

• $30,000 on a pool that never gets done
• $100,000 on a kitchen remodle that the contractor walks away from
• $500,000+ on a new home build that hasn’t been completed in two years and now the contractor is out of money and walking away from the job
• Even millions on commercial jobs like apartments and multi family investment properties

…on renovations and dream homes.

A performance bond can provide major peace of mind.

Typical Cost

Performance bonds often cost approximately:

3.5% of the project value

For many homeowners:

3.5% is a small price to pay for financial protection on a major investment.

8.Include Liquidated Damages in Your Contract

One of the biggest homeowner frustrations is project delays.

Projects can drag on for:

• Months
• Seasons
• Even years

This can create:

• Temporary housing costs
• Loan extension fees
• Stress
• Lost rental income
• Additional construction expenses

What Are Liquidated Damages?

Liquidated damages are pre-agreed financial penalties written into the contract if the contractor fails to complete the project on time.

Example:

The contract may state:

• Contractor owes $250/day for delays beyond the agreed completion date
• Exceptions may include weather delays or approved change orders

Why This Helps

Liquidated damages:

• Encourage timely completion
• Establish accountability
• Protect the homeowner financially
• Reduce disputes later

For custom homes and major projects, this can be an extremely valuable protection.

9.Always Use a Detailed Written Contract

Never rely on verbal agreements.

Your contract should clearly define:

• Scope of work
• Materials
• Brands/specifications
• Start date
• Completion date
• Payment schedule
• Change order process
• Warranty terms
• Cleanup responsibilities
• Permit responsibilities
• Insurance requirements

10.Never Pay Large Upfront Deposits

Be cautious of contractors requesting large upfront payments.

Best Practice

Small Down Payment 10-15%

Use milestone-based payments tied to:

• Completed work
• Inspections
• Verified progress

Avoid:

• Cash-only deals
• Full payment upfront
• Unusually low bids

11.Research Reviews and References

Always:

• Check Google reviews
• Review Facebook ratings
• Look At Instagram
• Ask for recent references
• Visit completed projects if possible

Ask Previous Customers:

• Did the contractor stay on budget?
• Did they finish on time?
• Was communication good?
• Were there unexpected issues?
• Would they hire them again?

12.Trust Your Instincts

If something feels off, pause.

Warning signs include:

• High-pressure sales tactics
• Refusal to provide insurance documents
• No written contract
• Large cash requests
• Poor communication
• Extremely low bids
• No online presence or references
• Large Deposit or payment in full up front

Final Thoughts

Your home may be your largest investment. Taking the time to properly vet a contractor can dramatically reduce risk and help ensure your project is completed professionally, safely, and on time.

The best contractors will welcome these requests because reputable professionals understand the importance of transparency, documentation, and accountability.

Quick Homeowner Checklist

Before Hiring a Contractor:

• ✓Verify business license
• ✓Verify contractor license
• ✓Check online reviews and references
• ✓Request COI directly from insurance agent
• ✓Request Additional Insured Endorsement
• ✓Verify workers’ compensation coverage
• ✓Verify contractor bond
• ✓Consider requiring a performance bond
• ✓Include liquidated damages clause
• ✓Use a detailed written contract
• ✓Avoid large upfront payments
• ✓Confirm permit responsibilities

Disclaimer

This guide is for general informational purposes only and should not be considered legal, insurance, or financial advice. Homeowners should consult with qualified attorneys, insurance professionals, and construction experts regarding their specific projects and contracts.