Home Improvement Insurance

Hiring a contractor for home improvements, renovations or remodeling projects is a safe, cost effective way to add value to your house. The process of finding a reliable contractor should always include checking references and qualifications. In addition, contractors are required to carry various levels of liability insurance, depending on local provincial or state laws.

There are other types of insurance coverage and protection you can ask the contractor to have as well when you draw up your contract. Consult an attorney and a reputable insurance agent when deciding on what insurance requirements you add into your home improvement contract.

General Liability

General combined liability insurance covers any property damage or personal injury caused by the contractor while doing work on your property. It is up to you how much coverage and what kind the contractor carries, as long as it meets or exceeds state requirements. Of course, the contractor will pass the cost of insurance on to you in the form of an increased bid, as this is a legitimate project related expense. The cost of increased coverage on an existing policy is typically not all that much, and it is recommended that a contractor have coverage equal to at least two times the value of the house after the work is done.

There are a couple of different forms of coverage underwriting you should know about. The first is the Claims-Made policy; with this type, claims will only be honored if they are made during the time the policy is in force. The second type is the Occurrence basis policy; with this type, you can still be compensated for a claim if a legitimate problem is discovered after the contractor has finished with the job and the policy has expired. You should make sure your contractor has the latter type of policy.

The contractor should provide you with a certificate of insurance. Check to make sure that your name is specified as “certificate holder” along with your home address, as well as the “additional insured” in the section of the certificate named Description of Operations.

Cash Retainage

The homeowner is allowed to withhold from payment 10 percent of the amount earned by the contractor on every payment, excepting the final payment. The withheld amount is termed “retainage”; it is intended to protect the owner against any price premium a second contractor would charge for finishing the job should the initial contractor not finish the job, for whatever contingency or reason.

The cash retainage is paid in full to the original contractor at the end of the job, assuming they do, in fact, complete it as per the contract agreed upon.


A bond is a contract between three parties; the homeowner, the contractor and the bonding agent. A bonding agent puts money of his own at risk, hopefully at his profit, in order to provide the homeowner with a guarantee that the contractor will fulfill the responsibilities he has agreed to in the home improvement contract.
Three types of bonds are involved which relate to home improvement construction projects.

Bid Bonds guarantee the price a contractor has bid will remain in effect for a certain amount of time, to be determined by the homeowner. If the bid is withdrawn at that price, then the contractor pays a penalty amount.

Payment Bonds guarantee the contractor pays all vendors and subcontractors as agreed upon.

Performance Bonds ensure that a contractor performs all duties set forth in the contract in accordance with the conditions and terms within it.

Bonds are usually only used on projects whose budgets exceed $100,000, particularly bid bonds, which are generally only employed on large, complex jobs where funding is dependent on a lower bidder’s bid.

Workers Compensation Insurance

Workers compensation is an insurance policy which allows an employer to compensate workers in their employ for injuries suffered on the job or who develop work-related conditions or diseases. Depending on state or provincial regulations, contractors employing more than a certain number or workers are required to carry worker’s comp insurance.

Some states even hold the homeowner liable for damages if they have not checked to ensure the contractor has adequate workers compensation insurance coverage; check with your local building association, department of insurance, or contractor’s licensing board for requirements.

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