Before you finally undertake the upgrade of your master bathroom or the makeover of your kitchen that you’ve been dreaming about, be sure to check what sort of home insurance you’ll need during and after your home remodeling project.
Otherwise, your dream project could turn into a nightmare. According to the International Risk Management Institute, home remodeling projects can lead to hefty insurance losses.
The Insurance Information Institute recommends ensuring your home is properly insured — and the contractors and subcontractors are, too — before the first nail is hammered.
It’s best to reach out to your home insurer ahead of construction to find out whether you’ll need to increase the amount of coverage you’ve got.
This way, you have peace of mind that you’ll be covered for the cost of repairing or rebuilding your home, since the structure likely will go up in value after the improvements are completed, the Insurance Information Institute says.
On top of that, if the project will expand your home — you’re adding a fourth bedroom, for example — it’s critical to update your home insurance to account for the extra square footage and extra value.
If your project involves a deck, pool, patio or hot tub, you also might need to increase the liability coverage provided under your home insurance policy. That’s because all of these projects increase risk.
With a typical home insurance policy, you’ve got basically liability coverage of $100,000.
So, if you’re at fault when someone is injured in your new pool or property is damaged on your new patio, you’ll be financially protected up to that amount of money if you’re sued over the injury or damage.
Generally, it’s wise to raise your liability coverage limit to $500,000 if you’ve added a high-risk element to your home.
If you want to go above $500,000, look into an umbrella policy.
This will cover legal claims surpassing $500,000.
Insurance for Belongings
Aside from liability coverage, examine the coverage for your personal possessions if your remodeling project involves new items like furniture or electronics, the Insurance Information Institute points out.
When you’re insuring your belongings, you’ll need to compare the two types of available coverage: actual cash value and replacement cost value.
Actual cash value pays for the item but subtracts depreciation. So, if you purchased a new TV for $1,200 but it’s valued two years later at $300, your insurer will pay only $300.
If you have replacement cost coverage, your insurer will cover the full $1,200 that you paid for the TV.
Furthermore, make sure your valuables are adequately covered in case they’re damaged or stolen by remodeling workers, the Insurance Risk Management Institute warns.
Builders Risk Insurance
Another kind of coverage you’ll want to investigate is builders risk insurance. A contractor typically purchases builders risk insurance.
But if the contractor doesn’t carry builders risk insurance, you really should consider buying your own coverage.
Builders risk coverage insures the structure itself during a remodeling project, as well as equipment, fixtures and materials that are being installed permanently.
Fire, wind, lightning and explosions are among the causes of damage that are covered. Among the scenarios that are excluded from builders risk coverage are floods, earthquakes, accidents and injuries.
Another type of remodeling coverage that’s available is vacant home coverage.
This type of coverage would kick in if your home is being remodeled while you’re not living there. Insurance for a vacant home differs greatly from insurance for an occupied home.
Contractor and Subcontractor Insurance
The Insurance Information Institute recommends verifying the insurance coverage carried by the contractor and subcontractors who’ll be working on your remodeling project.
If you believe the coverage falls short, you might need to beef up the liability portion of your home insurance in case, for example, a worker is injured on your property.
When you hire a general contractor, you also should request a copy of their workers’ compensation policy, the institute recommends.
Workers’ comp pays for medical and rehabilitation costs and covers lost pay if a laborer is hurt on the job.
However, an injured worker might take you to court if the contractor lacks adequate coverage.
Making matters more complicated, a general contractor normally subcontracts work to builders, electricians and plumbers.
Subcontractors typically aren’t full-time employees of a general contractor, so they might not fall under the general contractor’s policy for workers’ comp.
Moreover, some builders, electricians and plumbers who aren’t covered under a general contractor’s policy lack their own workers’ comp insurance.
If there are any gaps in the workers’ comp coverage, you might need to increase the liability coverage under your home insurance policy.