Unlicensed or Uninsured Contractors: It’s Not Worth the Risk

Any time your rental property needs work done, whether that be repairs or upgrades, your aim is to get the best deal possible. Right? Of course. No one wants to overspend on a project that could have been completed for cheaper.

When considering multiple bids from various contractors to perform a job on your rental property, it is essential you do not go with one that is unlicensed or uninsured. Though their quotes are likely to come in far lower than those of licensed and insured contractors (which is going to be very appealing), the risk you take in hiring them may end up costing you far more.

Today we will look at the importance of hiring contractors that are both licensed and insured, and will highlight the reasons you should not risk employing unlicensed or uninsured contractors to do work on your investment property.

The Importance of Contractors Having Insurance

When it comes to hiring a contractor to perform work on your rental property your first step is ensuring that they are properly insured. This means that they should have both liability and workers’ compensation insurance policies in place.

Liability Insurance

Hiring a contractor with an active liability insurance policy is going to protect you from being legally responsible for things such as:

• Damage Claims. If the contractor performing work on your property damages it in any way, their liability insurance will cover the cost of repair.
• Injury Claims. Medical expenses, funeral costs, and any court-awarded judgments handed down will be covered by the contractor’s liability insurance should anyone get hurt on the job site. Take note that this is not the same as workers’ compensation insurance coverage.
• Job Completion Claims. If the contractor you hire fails to meet the standards set forth in the contract as it relates to job performance, liability coverage will help cover the cost of fixing the mistakes.

In the end, if you decide to hire a contractor that does not have liability insurance, and any of the above scenarios occur, it is highly likely that any associated costs will fall on you.

Workers’ Compensation Insurance

Hiring a contractor with workers’ compensation insurance is important in the rare event an employee of the contractor is injured while working at your property. Though your homeowners insurance will likely kick in to help cover the cost of a personal injury while on your property, the truth is this:

• You will have to pay a deductible, which, depending on the policy you have in place may cost a lot.
• Homeowners insurance only covers so much. If the employee is severely injured and has to be out of work for an extended period of time, once your policy limits are exhausted, you will then be financially responsible for any additional costs.
• Making a personal injury claim harms your chances of having low insurance rates in the future. Worse yet, it can affect which companies are even willing to insure you.

Altogether, employing a contractor that has a solid workers’ compensation policy in place is the best way to avoid having to foot the bill in the case of an injury, no matter the seriousness of it.

The Importance of Contractors Having Proper Licensure

Many times unlicensed contractors come in with lower quotes because they are not paying for licensing fees or bonds to guarantee their workmanship, and are often not paying for liability or workers’ compensation insurance either. However, hiring an unlicensed contractor, though tempting with their lower price tag, presents several risks.

Competence Risk

The whole point of licensure is to demonstrate your competency when it comes to performing tasks related to your field. Without proper licensing, there is no promise that the contractor you have hired to perform work on your rental property is actually capable of performing such work properly or in a legally compliant way.

In addition, those without licenses are not reported to the local board of contractors when a customer pursues a claim. This means there are no real repercussions for a job poorly done and there is no way to review prior customers’ experiences.

Permit Risk

An unlicensed contractor often does not obtain the legal permits required to perform work on your property. This may be because the contractor is unaware that they need permission to perform certain jobs (see competence risk), or they may not even care. After all, without a license or insurance of any kind, there is often very little you can do if they do not properly perform their work.

Not having the proper permits in place can affect you in the long term. If you have something repaired or upgraded on your property that has not been approved by the proper authorities, you risk having to reverse the work that was completed. And don’t forget, this will all be done at your expense.

In addition, if you decide to sell your rental property and fail to disclose that certain work was completed on your property without the proper permits, you could face liability for withholding certain information from your buyer.

Negligence Risk

Since many unlicensed contractors do not have liability or workers’ compensation insurance in place, should an employee get hurt on the job, or the contractor’s team damage neighboring property or passersby, you may become responsible for the associated costs. This could mean thousands in payments, repairs, and court-appointed settlements, all coming out of your pocket.

In the end, hiring an uninsured and unlicensed contractor is just not worth the risks that come with doing so. Although they may at first lure you in with their low costs, the legal responsibility you take on by hiring them is far too great to make their cheap prices seem like a good deal.