Insurance considerations when remodeling your home
If you're planning structural changes to your home, it's important to consider how this will impact your homeowners insurance and the steps you need to take to ensure adequate insurance coverage during the remodeling process and after completion. Depending on the scope of your project, your home's value may change following your remodel, and your homeowners insurance will need to be updated.
If your homeowners insurer learns of a major renovation or addition completed without an update to your policy, the company could cancel your policy or issue a non-renewal for failing to report the change. It's in your best interest to keep your insurance company abreast of your remodeling or renovation plans. You can never be too transparent.
So before you knock down that wall, consider these steps before you embark on your remodeling project.
Before the project starts
Most home insurance policies require you to carry enough insurance for at least 80% of the property's replacement value, so make sure to confirm the value of your home before the remodel. Call your insurance company to confirm your coverage and let them know about any additions or home improvements you're planning to make and inquire whether it will be necessary to increase your coverage limit.
Ask if your coverage extends to building materials. If it doesn't, consider adding an endorsement. If building materials are damaged, destroyed, or stolen, your insurance company will not replace them if you hadn't expanded your coverage.
Ensure your coverage won't be exempted if you won't be occupying your home while it's being remodeled. It may also be a good idea to increase your liability coverage in case someone injures themselves on your property during the project.
Take "before" pictures of the space you're planning to renovate or remodel and keep it for your records. Account for furniture or belongings that you may place in storage during the project, and make sure they're covered by your homeowners policy if they're stored outside of your home.
What to discuss with your general contractor during a renovation
Your contractor should carry adequate insurance to cover themselves and their employees. Renovations may require high-risk work, involving dangerous tools like blowtorches and saws and risk of falls. A renovation also leads to increased foot traffic and your home's being unoccupied during the renovation, which could result in vandalism and theft.
Ask for proof of insurance in the form of a "certificate of coverage" — this should include liability insurance and workers compensation. The contractor's liability insurance is meant to cover any damage to your property while it's under construction.
Though homeowners insurance should cover potential incidents during the remodel, your insurer will expect your contractor's liability insurance to pay out for the damage since they expect your contractor to carry their own insurance. Workers compensation is meant to cover any injuries the contractor and their employees may sustain while working on the project in your home. If they don't carry this important coverage or it's insufficient to cover their injuries, the employee may sue you for liability.
What does "bonded and insured" mean?
When hiring a handyman or contractor to do work in your home, you might come across the phrase “bonded and insured” in your search. These words indicate that the contractor is properly protected and ethically doing business. To be “bonded” means that you, the homeowner, are financially protected if the contractor or handyman doesn't complete a job or the job is poorly executed.
Most legitimate contractors obtain a bond from the state agency before being licensed. In addition, it is of paramount importance that workers are properly insured while working on a remodel. Make sure your chosen contractor is licensed, bonded, and insured, as all three indicate that the worker is operating ethically and legally.
Home insurance and renovations: after the project is finished
The hard part is over if you've already discussed your home remodeling plans with your insurance company. Once complete, recalculate the new value of your home with your insurer and increase your coverage as needed to cover at least 80% of its replacement cost.
Take some "after" pictures of your new addition or space for your records in case your insurance company needs to refer to them. If you furnish your remodeled space with new furniture or other belongings, don't forget to expand the home contents portion of your homeowners policy to cover those additions.
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