Why You Must Hire an Insured General Contractor for Your Home Construction Project
Author: Rachel Porter
Deciding to go with new construction home vs. an existing home is always an exciting time, especially if it’s your first one. If you choose to build your new home with a national, more well-known builder you don’t have to worry much about checking whether your general contractor having insurance coverage or not.
But if you decide to venture out on your own and have a custom built home with a custom home builder, do make sure you do your due diligence and find out as much as possible about your potential builder or in another word, your general contractor.
The first and foremost item on your list is their general contractor license and their insurance. The license has to be currently active and so does their insurance. A well established general contractor will likely to have representation or a team working for them.
A newly general contractor who is trying to make their name known will be working with you on an individual basis. In that case, you will want to pay close attention to the general contractor’s insurance policy coverage, his license status, and any other rating, reference they might have.
A new build project is not like an addition or a remodel project. You are looking to invest your own time and money. If you’re using a lender, then they will make sure the builder or general contractor you selected is legitimate and insured. But if you are using your own money to build then you want to protect yourself by doing your own screening.
After all, when you’re building your very own home from the ground up, you get the final say on its every single aspect. The style, design, and materials would be entirely at your discretion, unlike with an existing house where you have to make do with what’s already there. Unless you spring for a home improvement project with an existing home, this is where you really want to make sure to do your diligent and check out your general contractor’s license status as well as whether he or she is insured and bonded.
When choosing the new home construction option, there are a lot of things you have to consider before you can even break ground. You have to find the best possible location, for one. You have to prepare a realistic budget for the project, for another. Then there’s the very crucial matter of choosing a general contractor to oversee the entire construction.
When you have an existing home or purchased an existing home and you are looking to have improvement projects that required some type of professional services. Again, there’s a very crucial matter of choosing a general contractor to oversee the entire project.
Considering that the success of your project whether it’s big or small rests primarily on the shoulders of the general contractor you hire. Thus, you must pick one with the expertise, capability, experience, and reputation to help make your goal a reality and not a nightmare where you have to tries to recover or clean up afterward. This is why we want to point out to you why your general contractor must prove that they are insured and bonded.
Buying your first house is a major decision, and after all your hard work to finally call that house your home, you want to protect your investment. Let’s talk insurance.
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So why must you hire an insured general contractor for your home improvement or new home construction?
1. The general contractor is legitimate
We live in a world where a lot of people pretend to be what they’re not, and the contracting business is peppered with them. Far too many unlicensed “contractors” offer their services, and you would not want these people anywhere near your project especially the construction of your new home.
We’re not saying that being licensed general contractors automatically means they’ll do a better job than unlicensed ones. It’s just that being licensed to offer services as a general contractor also means that person also has insurance because it’s typically a requirement before they can secure a license.
2. Liabilities for injuries and damages
Contractors are typically the ones who are held liable for property damage, physical injuries, or even deaths that occur in the course of a contracting job. If they are insured and bonded, then they should be covered if anything unfortunate happens at the work site.
However, if the general contractor you hired has no proper insurance coverage, then you are assuming the risk for any damage, injury, or death that may occur during the construction of your new home. In other words, you are, in effect, the general contractor, and may be sued by a subcontractor or an injured worker who is not covered by worker’s compensation insurance.
At the very least, the general contractor you decide to hire should have general liability insurance which covers third-party injuries or property damage, and workers’ compensation insurance, which shoulders the medical expenses of workers who get injured at work, pays any wages lost because of the injury, and compensates families of workers who die on the job.
By the way, if you think your homeowner’s insurance policy would cover claims against you by a worker who suffers an injury while working on your construction project or any property damage they might have caused, you might have to do some rethinking. You also might want to have that discussion with your insurance agent first before proceed too far into the project and something incident happens.
Insurance companies are known for their meticulousness, and they will likely learn that you knowingly hired an unlicensed and uninsured general contractor. Once they confirm that, you can bet that you will not have coverage for any injury or damage, and you will have to pay on your own for everything.
3. Costs in the long run
Admittedly, licensed, insured, and bonded general contractors typically charge higher fees compared to “contractors” who neither have license nor insurance coverage. This is probably the reason why some customers decide to go with unlicensed and uninsured contractors.
For those who choose this route, it might come back and bit them. The dollar savings, however, would likely mean nothing in the long term, especially if your unlicensed and uninsured contractor commits a huge construction mistake that needs to be redone or if one of his or her workers sustain a severe injury during construction. You will be the one paying for all of that, and more.
There are 3 main building blocks that create the foundation for a solid mortgage application. If any of these 3 building blocks are compromised, it can result in a less than desired type of financing or having to change your financing to allow you to proceed.
4. Making sure you are protected
When you’re interviewing candidates for the job, a legitimate contractor will have all of that information ready and available for you up front, immediately upon request.
However, a “yes” from them without showing any proof should not be enough. When you ask to see a copy of their license and their certificate of insurance to make sure you’re hiring a legitimate player in the field and their kind of brush it off or give you an “I will get that information over to you later” and keep on trying to get you to sign the contract with them. Consider it a red flag if your candidate does not immediately provide you with the copies you requested.
When they do come through with providing you copies, read them thoroughly to make sure they are up to date. If you want to be completely satisfied, you can call the insurance provider to confirm that everything is legitimate and in order. A visit to the website of the Department of Labor and Industries in your state should also help you verify their license.
5. Avoid uninsured general contractor
We all want to save money on everything we do. We have to admit with the generally lower rates that unlicensed and uninsured general contractors dangle in front of our faces, it’s quite easy to just bite, and sometimes bite hard. This desire to scrimp on a few dollars, however, could prove to be your undoing.
When you have an unlicensed general contractor working on your new home, you cannot be sure about the quality of work that will be put into it. Even worse is that an unlicensed—and therefore uninsured — the contractor can also make you ripe for a lawsuit if a worker without workers compensation coverage gets injured while working on your new home. Far too many people have had to face financial ruin because of a loss in court, and you wouldn’t want to be one of them.
Lastly, whether you choose to hire an insured or uninsured general contractor for your upcoming project, please make sure to keep a tab of all the subcontractors, the workers on the job and make sure your general contractor give you a copy of all the lien releases.
The last thing you want is to learn is someone put a lien on your property because they have performed a service at your property and never get paid for it. Don’t try to save a few bucks then learn your big lesson after. It’s just not worth the risk.