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YEARS AGO, I SAW a Looney Tunes cartoon starring Daffy Duck and Elmer Fudd. As always, good old Elmer was trying to kill a duck for dinner, only to be outsmarted by the much cleverer Daffy.
In this particular episode, Daffy is playing a game of catch with his duck friends outside Elmer’s house. An overthrown ball crashes through a window. Elmer comes out and says, “Who broke that glass? Someone is going to pay for that.” The ducks all bump into each other in their efforts to run away.
Elmer gets outfoxed, of course, but you don’t have to be a patsy like him when it comes to home repairs or remodeling. Imagine you’ve hired a contractor to work on your house. What happens if the contractor breaks a window or, worse still, drops a load of roofing shingles onto your new car?
You may have done your due diligence in selecting a contractor by getting a recommendation from your neighbor, obtaining numerous quotes and reviewing the contractor’s Better Business Bureau ratings, so you might assume that your contractor will replace the broken glass or pay for your car’s bodywork.
But instead, you may get the runaround. Maybe the contractor is broke. He may keep making promises without undertaking the repairs. He might even abandon your job without warning.
To keep from getting fleeced, request a certificate of insurance from the contractor before he steps foot on your property. This one-page document typically tells you if the contractor or his subcontractor has three insurance policies in force: a general liability policy, a worker’s compensation policy and a commercial auto policy.
What do these three policies cover? First, the general liability policy will cover any damage the contractor does to your property, such as a broken window or dented car.
Second, the worker’s compensation policy covers his workers if they get injured on the job. Worker’s compensation is no-fault, meaning no matter how or why the worker was injured, the policy will pay the employee while he’s laid up.
Third, the commercial auto policy is similar to the general liability policy, except it covers injuries or damage caused by his vehicles on your property. Say a worker plows through your garage door. A commercial auto policy should cover your loss.
If the contractor can’t provide a certificate of insurance, be cautious. You might be working with a small-time operator who you know and trust—or someone who’s fly-by-night. It all might work out fine. But if it doesn’t, it’s potentially your loss.
While these three policies are essential safeguards, there are two more insurance coverages you might want for big projects. If you’re making major renovations to your house, you might confirm that the contractor has a builder’s risk policy in force.
A builder’s risk policy insures against damage to buildings that are under construction. It can cover losses caused by fire, hail, windstorms, vandalism or theft, among other perils. Coverage continues during construction and ends when the job is done.
If you have a very large project, you probably should ask for a contractor performance bond. This policy, which is secured by the contractor, would make you whole should the contractor not complete the work spelled out in your contract. The bond would pay you for the unfinished portion of the promised work if you’re named on the performance bond.
Surprises happen so often in construction that mishaps seem more like certainties. Insurance won’t solve the runaway problem of cost overruns. But it can help protect against damage to your home, your car, a worker’s health and your finances.
“MONEY PIT” USUALLY refers to an old home that needs constant repair. But the term can also apply to anything on which we spend endless money.
For instance, in my teenage years, I saw guys use every paycheck they got to buy something new for their car. It might be a new piece of chrome, a stylish set of wheels or a new stereo. It seemed like there was never an end to the spending. After a while, they’d enter their tricked-out cars in auto shows, where they’d be admired by other guys who also spent too much on their cars.
There are two types of people in this world: savers and spenders. You either find a reason not to spend money—which means you save it—or you find any reason in the world to spend it.
For many people, their home is the chief reason to spend. This is the classic money pit. They serially remodel the kitchen, bathrooms, basement and garage. Outside, they can always justify building an extension, a deck, a swimming pool, a cabana or even a new shed to store all the stuff they buy for home maintenance. The possibilities are endless.
Some improvements are justified, of course. If some house-related spending allows you to lead a better life, I’m all for it. Years ago, my wife’s family added an above-ground pool to their house on Long Island, New York. It gave her cousins from New York City a good reason to visit during the hot summer months. Their house became a gathering place for the extended family, and provided my wife with many happy childhood memories.
Run a business out of your house? Creating a home office is a worthwhile expense—but redecorating that office every year seems excessive. For the spenders of this world, though, such expenditures are easily justified.
What about the other person living in the house? Does he or she feel the money is well spent—or wasted? Could it have been better used for the kids’ college education or to fatten the family’s retirement savings?
Money can be spent or saved. Spending all of it or, worse still, borrowing to spend, inevitably leads to money problems. My advice: Unless the money is being used for the betterment of all involved, try to steer clear of money pits of any kind.
David Gartland was born and raised on Long Island, New York, and has lived in central New Jersey since 1987. He earned a bachelor’s degree in math from the State University of New York at Cortland and holds various professional insurance designations. Dave’s property and casualty insurance career with different companies lasted 42 years. He’s been married 36 years, and has a son with special needs. Dave has identified three areas of interest that he focuses on to enjoy retirement: exploring, learning and accomplishing. Pursuing any one of these leads to contentment. Check out Dave’s earlier articles.
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Echoing Dan’s comment. Your request for information about the contractor’s CoI should come directly from the insurer, not the contractor. I have an article publishing soon where I mention the importance of a CoI, too.
Dave, thanks so much for the article about the insurance. It was so helpful. I appreciate you taking the time to write it. Chris
Dave, this is very useful information. I would add that the certificate is easily attained by the contractor with a quick call to the insurer. If the contractor hesitates or acts indignant to your request, he/she probably isn’t insured.