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Ask an Expert: Is my contractor overcharging me for insurance?

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Q. I'm just beginning to get bids for a large renovation project. The bids of the first three contractors are around the same amount overall, but there's an incredible discrepancy regarding insurance.

One of the contractors only has $13,000 listed for insurance, while another has insurance at over $50,000.  

Why are the numbers all over the place?

A.  There's an explanation, though it may not be very satisfying, say our experts.

"Proper general contractor coverage is expensive, and most general contractors have an annual policy that is based on payroll or sales," says apartment insurance broker Jeff Schneider of Gotham Brokerage. "The amount it costs them can vary greatly," 

General contractor Jeff Streich of Prime Renovations agrees that variety is the name of the game.

"Some contractors pay just $5,000 a year for their insurance and will submit the plumbers insurance and electricians insurance separately," says Streich.  "A general contractor who has subs working for them should have general contractors insurance which cost around 10 times that. I for one carry a GC insurance with a $5 million dollar umbrella. Most general contractors do not have an umbrella or it's a lot less."

Streich says that he typically charges 3% of the total cost of the project for insurance, and while the $50,000 quote you received seems high, "it would make sense if the contractor only does one project a year."

Whichever contractor you hire, make sure that he or she presents you with proof of workers compensation and general liability coverage, says Schneider.

"General liability coverage should be no less than $1 million and preferably not less than the value of your residence," he says. "You should be listed as an additional insured and your written contract with the general contractor must specify this. Your co-op or condo will also want to be an additional insured." 

Schneider also suggests that you note the expiration date of coverage and make sure you get a new certificate when that date approaches.


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