Updated March 2026
Hiring an unlicensed contractor might seem like a way to save money, but it exposes you to serious financial and legal risks. Here's what you need to know before cutting corners on contractor verification.
Your Homeowner's Insurance May Not Cover the Work
Many homeowner's insurance policies exclude coverage for work performed by unlicensed contractors. If an unlicensed contractor causes water damage, a fire, or structural issues, your insurance company may deny your claim — leaving you to pay for repairs out of pocket.
No Surety Bond Protection
Licensed contractors are required to carry surety bonds in most states. If a licensed contractor abandons your project or does defective work, you can file a claim against their bond. With an unlicensed contractor, there's no bond to claim against — your only recourse is a civil lawsuit, which is expensive and time-consuming.
No Workers' Compensation Coverage
If a worker is injured on your property and the contractor doesn't carry workers' compensation insurance, you could be held liable. Medical bills from a construction site injury can easily reach six figures. Licensed contractors are required to carry workers' comp in most states.
Building Code Violations
Unlicensed contractors often skip building permits to avoid detection. Unpermitted work can result in:
- Fines from your local building department
- Having to tear out and redo the work to meet code
- Problems selling your home (inspectors flag unpermitted work)
- Safety hazards from work that doesn't meet building codes
Limited Legal Recourse
If an unlicensed contractor does poor work, collecting damages through the legal system is difficult. Many unlicensed contractors operate as cash businesses with few assets. Even if you win a judgment, collecting on it may be impossible.
In contrast, licensed contractors have bonds, insurance policies, and business assets that provide real avenues for compensation.
How to Protect Yourself
- Always verify the license before signing a contract. Use our free lookup tool.
- Ask for proof of insurance — both liability and workers' comp.
- Get everything in writing — scope of work, timeline, payment schedule, and materials.
- Never pay more than 10% upfront (or the limit set by your state).
- Verify permits are pulled — your contractor should handle this, and you should see the permit posted at the job site.