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 increase.
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.