Oftentimes clients ask us for contractor referrals from an electrician, re-modeler to ground up new home builders.  When are happy to share our best contacts, but inevitably the question of "Are they Bonded and Insured?" come up.
 
A contractor is not just the guy you hired to build your home or install a new shower. A contractor is anyone hired to perform services, whether the lawn guy, or even your dentist. Most "contractors" are bonded and insured in some sort of way or different term.
 
Let's use the building contractor in this case. He or she should be bonded and insured to protect their customers, and themselves as well. It is well known that many contractors may advertise being "bonded and insured" but are not. It is also well known that the customer seldom calls the contractor's insurance carrier for verification. I myself recently shopped for someone to cut down three small to medium sized trees on our property and haul the lumber away. I got three different bids, from $500 to as little as $150. None of these people were insured or bonded. The guy that gave me the bid for $150 was sure he had landed the job, but he was the least I would have considered for obvious reasons. Why would I hire someone uninsured to cut a tree down that could possibly damage my roof? I wouldn't, but the dilemma of cost versus risk are factors. O.K, let's get to the point. 
 
Bonded: This type of insurance protects the customer in case the contractor leaves with your money and an unfinished or unsatisfactory job. This works for the contractor too, in case of a bad client, he can rid himself of the client by putting a claim in and passing the buck to some other contractor.       
 
Insured: This is usually called a "general liability" insurance. It protects the client in case the contractor accidentally damages something or client gets physically hurt by contractor's fault. It also protects the contractor from frivolous lawsuits brought to him when the customer cuts his finger off with the contractor's electric saw he used without permission. 
Now you know.
source:  Steve Medina / Home Inspector