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Undoubtedly, you have been told or read that when you hire a contractor, they should “have insurance.”  While that is true, it is also extremely vague.  What types of insurance?  And how much?

Contractors need four types of insurance.

  1. Automobile insurance of $1 million.  The contractor has to drive to the job.  This will cover medical, physical damage, lost wages and pain and suffering to other parties due to auto accidents.  Note that liability insurance (see 3 below) will not usually cover automobile-generated damage.
  2. Worker’s compensation insurance of $500,000.  If the contractor is injured in your home or office and does not carry worker’s compensation insurance, you could be liable for paying both medical costs and lost wages.  If you think your homeowner’s insurance will cover you, don’t be so sure.  Homeowner’s policies frequently stipulate that it is your job to make sure the person you have working in or on your property is properly insured.
  3. Liability insurance of $1 million.  This covers any damage to your home or business, as well as contents.
  4. Umbrella policy.  This is an additional liability insurance policy that is in excess of the above policies. If a contractor incurs a liability, the primary insurance policies pay up to their limits, and any additional amount is paid by the umbrella policy.  You want your contractor to have liability and umbrella to total more than the value of your home plus contents.

Make sure the total of all coverages is more than the value of your home or business plus the contents that can be damaged.

Finally, don’t just take the contractors word.  Request to see certificates of insurance.  If the contractor cannot provide them, find another contractor.

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