Licensed, bonded, and insured. We see it in advertisements and hear it on radio and TV spots. Yet many are unsure exactly what these terms mean or how they can protect homeowners from unscrupulous or incompetent contractors.

Licensing: Many states require both residential and commercial builders and contractors to be licensed. There are separate licensing requirements for residential, mechanical (plumbing, electrical, HVAC), and general contractors.

Bonding: Fidelity bonds protect the homeowner from dishonest acts incurred by a contractor's employee.

Insurance: This is the most familiar of the three requirements, but there are differences from what most understand as insurance. Workers' compensation is vital to protect homeowners from liability for injuries incurred by workers when present in their homes. Commercial General Liability insurance (GCL) protects the homeowner for bodily injury, property damage, or personal injury. In the event there would be damage or loss to a home or structure due to a contractor's negligence, the homeowners' property insurance may not be in force. It would be necessary for General Liability Insurance to offer the coverage.

While the license is issued by the state, the bond and insurance is backed by an insurance carrier. Contact information, for verification purposes, is listed on the insurance certificate; as is the expiration date of the policy. Ask to see licenses, bonds, and certificates of insurance if you have any doubts about the contractor you're thinking of doing business with. Reputable companies like Mr. Handyman are happy to provide proof of their adherence to the laws and regulations designed to make certain that contractors, employees, and homeowners are protected during the completion of a project.

In these tough economic times, homeowners need the protection offered by properly credentialed contractors. Service providers that are willing to cut corners on licensing, bonding and insurance are much more likely to cut corners when working at your home. If you know a friend, relative or neighbor with a contractor/project horror story at their home, more often than not the issues occurred with an un-credentialed contractor. You should protect yourself.