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Should hired household help be bonded and insured?

By Posted :

HouseIf you're looking to hire someone to clean your house, mow your yard or baby-sit your kids, you may have questions about who to hire.

Can you just hire the retiree across the street or the teen down the block, or should you go with a firm that provides the type of professional you need? 

What if you are in the market for a full-time household employee?

One of the first questions you may have is, do you need to find people who are licensed, bonded and insured? In most cases, the answer to that question is yes.

Let’s have a look at what you should consider when hiring household help.

What does bonded and insured mean?

Bonded

Bonding is simply a way for you to be reimbursed if a person or company doesn’t fulfill its contract, do the work that was agreed upon or even steals stuff from your home. If any of these things were to happen after you’ve hired help, you could file a claim against the company (or other household employees) with the bonding company.

A bonding company holds money that has been secured from the company and will pay out your claim after they investigate and agree that you should be compensated. They act as a neutral third party to settle disputes between a company and their clients.

If you deal with a company or person that is not bonded, there is no claim process to deal with any disputes. You will have to rely on the goodwill of the helper you’ve hired. But the problem with that is that they can simply choose to ignore your complaints, refuse to refund your money or completely cut off communications. Your only option would be to sue them, which can quickly get expensive.

Insured

While dealing with a bonded company is important, making sure they are insured is absolutely essential. The hired companies’ insurance policy will cover any injuries, health problems, or damage done during their work at your home. If they are uninsured and anything happens, the financial repercussions will fall to you or your homeowners insurance.

For example, if a house cleaner is injured on your property, they would file a claim with their own insurance company to cover their medical bills, lost wages and any damage they may have done to your home. It doesn’t just cover medical issues. If the house cleaner leaves a faucet running that floods your bathroom floor and does significant damage to your home, their insurance will cover the cost of repairs.

On the other hand, if you hire an uninsured cleaning company, you may end up on the hook for these types of expenses and, in a worst-case scenario, find yourself being sued by the uninsured cleaner you hired. While you can certainly make a claim on your homeowners insurance, depending on the circumstances, it may be denied, and even if they pay up, you will have to pay your deductible. Your rates will climb, so the accident will end up costing you money one way or another.

So, does my housekeeper need to be licensed, bonded and insured?

It may all come down to how much risk you're willing to take on.

"It's a value judgment people have to make on their own," says William K. Austin, co-founder of Austin & Stanovich Risk Managers LLC, an independent risk management consulting and insurance advisory company with offices in Massachusetts and Rhode Island.

When it comes to hiring people such as lawn-care workers and house cleaners, "with routine stuff like that, I'm not really worried," Austin says.

But he and other insurance experts say it’s crucial to have the proper insurance in place on both your side and the service providers to ensure that it will cover things that might happen.

So, if your cleaning woman falls down your stairs and injures herself, it would be covered under the liability and medical payments portions of your homeowners insurance policy.

But you also need to consider whether your insurance will cover you if the person you hire does something that injures you or damages your property, he says. If someone is mowing your yard and a rock flies up and hits you in the head, your health insurance should cover whatever medical care you might require, Austin says.

But you should verify that you have the coverage you need.

"There's a good chance these workers will be covered by your homeowners or renters policy, but each company treats things a little differently," says Randy Petro, vice president of claims for Mercury Insurance in Orange County, California.

Even if the injury or damage is covered, a significant claim on your homeowners policy can have a big impact on what you pay for coverage. It’s also good to remember that if the damage is significant enough, it might exceed the coverage limits your insurance company will pay out.

Different workers, different insurance solutions

What type of household worker you are hiring will determine the financial protection you will need. While your homeowners policy will most likely cover occasional workers, you may need another solution if you have full-time employees coming into your home regularly.

Here are a few examples to consider:

Occasional workers

If you are hiring the occasional babysitter or a neighborhood kid to rake your leaves, shovel your walk or clean out the garage, your homeowners or renters insurance should be sufficient. Homeowners insurance provides a couple of different protections:

  • Medical payments: This coverage will protect you if a guest (or occasional employee such as a babysitter) is injured in your home, regardless of who was at fault. This coverage is designed for small claims. Coverage levels vary, but they usually start around $1,000 and go up to $5,000, which is generally sufficient to cover small accidents.
  • Liability coverage: The liability portion of your homeowners or renters policy will also cover injuries on your property, but it comes with much higher coverage levels. A standard homeowner policy comes with $100,000 in liability coverage. Most experts recommend carrying at least $300,000 in liability coverage.

If you contract a worker employed by a firm

If you need to hire a household worker, for example, a nurse, cook, or a housekeeper, you may use a firm to provide the service. In these cases, you should verify that they insure and bond their employees.

In this case, you should ask for a copy of its certificates of insurance. Check the policy's effective dates to make sure it is current and consider calling the insurance company to verify their coverage is still in place. Phony certificates of coverage certainly crop up, so it is best to check directly.

Permanent full- or part-time employees

Suppose you have permanent home workers that work in your home every day or on a regular basis. In that case, you may want to consider purchasing workers compensation insurance, according to the Insurance Information Institute.

Workers comp insurance will cover costs related to medical bills and physical rehabilitation for an employee who is injured on the job. This coverage will also payout for lost wages if the employee is severely hurt and can no longer work. It is best to check your state regulations to see if they require workers compensation for the type of employees you're hiring.

If your state requires worker comp for household employees, don’t ignore the law. Suppose you are required by law to buy workers compensation insurance and do not do so. In that case, your homeowners or other applicable policies will not pay for any fines, court awards, or any other penalties against you, leaving you to pick up the tab.

Consider an umbrella policy

If you have significant assets or employ several household employees, you may want to consider an umbrella policy to up your liability coverage. While many homeowners policies cap liability coverage at around $500,000, an umbrella policy can push your liability coverage up to $5 million.

The big plus with umbrella policies is that they are pretty affordable; according to the Insurance Information Institute, a $1 million umbrella policy cost $150 to $300 per year.

An umbrella policy offers some additional protection, beyond your standard home insurance, that could help you out if you do hire someone who isn't bonded and licensed and an issue occurs.

Final thoughts on why household help should be bonded and insured

It all comes back to protecting your assets. If someone is injured in your home and they are not carrying their own insurance, you can be held legally liable for their medical bills, lost wages, physical therapy and even the cost of a lawsuit if they decide to sue. While your homeowners policy should step up in most circumstances, there will still be costs that you will have to pay out of pocket and a serious accident can quickly exceed your coverage limits.

If someone is injured while working at your home and you file an insurance claim, you would still have to pay the deductible and then your rates will increase after the claim. If someone suffers a serious injury, it could result in a claim that exceeds your policy limits, leaving you to pick up the balance of the tab.

Teresa Leigh, owner of Teresa Leigh Household Risk Management, with offices in New York City and Raleigh, North Carolina, is a big advocate of hiring only those people who are properly licensed, bonded and insured.

That means they have a business license, have the proper insurance and have made payments to a surety company for protection by a bond.

The insurance company or surety company will be responsible for covering any financial losses. For example:

“If you're hiring someone such as a painter or chimney sweep, you should request that the individual or company provides you with a copy of their certificate of insurance,” says Leigh.

If the work you've hired someone to do isn't completed correctly or in the time frame scheduled, you can file a claim with the surety company and be paid. The bond may also cover damage or theft that occurs.

If the worker is injured at your home or your property is damaged or stolen, their insurance company would cover the loss, not yours.

Austin also recommends requesting a certificate of insurance from anyone you hire who is undertaking a bigger job, such as installing a pool or re-roofing your house. There is a greater risk that someone might be injured or your property might be damaged.

Unfortunately, not every cleaner, handyman, or contractor is honest, which makes checking their background, insurance certificate, and ensuring they are licensed and bonded a necessity. The Better Business Bureau says hiring a house cleaner who is licensed, bonded and insured is "crucial," and you need to verify that the information is legitimate and current.

That verification also protects you from scammers, Leigh says, helping "you select out the people who are legitimate."

You also need to be sure that the person you hire to do work for you isn't considered your employee under federal law. If they are, it could open up a whole array of tax issues. It also means you may need to be providing workers compensation insurance, Leigh says.

"Many homeowners will get this confused and think they aren't responsible for medical costs when they actually are," Leigh says.

One way to avoid those kinds of problems is to hire someone employed by an agency or be sure that the individual you hire is licensed, bonded and insured.