Due to sustained record low
interest rates, many homeowners have elected to take on major home remodeling
projects. According to the National
Association of Home Builders, approximately 26 million Americans spend more
than 180 billion annually on home improvements. In many cases, however, homeowners are not updating their
insurance at the same time, leaving themselves extremely vulnerable.
Making sure you are appropriately insured should
begin at the very start of a project.
A contractor should not be hired if they cannot produce their
certificate of insurance. The contractor
should provide you with a copy of their certificate, which shows the type and
amount of their insurance coverage.
This should include general liability, workers' compensation and auto
coverage, and the policy must be current.
It is equally as important to make sure that any
subcontractors that your contractor brings in to the job are similarly
insured. This is particularly important
now, as insurance rates for the construction industry have recently risen
significantly. You want to make sure a
member of your remodeling team didn't choose a coverage lapse over a premium
When you choose to take on a remodeling project
yourself, you must review your own coverage for liability and property damage
issues, particularly when bringing in subcontractors to help with the
work. As the homeowner, you may be
liable if they are injured during the scope of your project. Even if your current policy covers any
injuries related to the renovation, we often recommend that homeowners carry
umbrella liability coverage, which would cover a claim beyond normal limits.
In addition to liability issues, it is key to
increase your homeowner's coverage based on the added value to your home. Kitchen and bathroom renovations are the
most common and tend to be quite costly.
They also substantially increase the value of a home.
Homeowners should use caution not to over-insure
themselves. Don't increase your
insurance based on the cost of the remodel.
You should determine how much it would actually cost to rebuild your
home with the added improvements. This
replacement cost is the amount that needs to be insured. The cost to remodel also includes tearing
out old materials. Therefore, in some
cases, the cost difference to rebuild the home may be less than the actual
renovation cost itself.
The most important item to consider is to contact
your insurance agent to increase your homeowner's limits before, not after, a
renovation project. This will ensure
that you are covered should any fire or damage occur during a renovation.