4 Insurance Pitfalls to Watch Out for When Remodeling Your Home
Remodeling your home should add value to your property and give you new comforts and conveniences. Many contractors are reluctant to tell you that remodels don’t always go smoothly. Problems usually do crop up somewhere between starting a renovation and finally beginning to enjoy the new features you’ve added to your home. Some of those problems can leave you exposed financially. Here are four insurance pitfalls you can avoid if you know what to do.
· Insure the increased value of your home before you begin.
· Check out your contractor’s insurance. It’s critical!
· Dangers of becoming your own general contractor
· Take extra care on DIY projects
Insure the Increased Value of Your Home Before You Begin
Whether you’re renovating a kitchen with new granite counters and a flat top cooking stove and oven, adding another room – or even another story – your home’s value will increase when the renovation is complete. Should you suffer a fire or other peril covered by your homeowner’s insurance and lose the work that’s already underway, your existing policy may not cover you adequately. You might have to pay for re-doing the work out of your own pocket.
Most carriers offer a few choices for insuring your home. Replacement cost coverage is what most insurance professionals recommend, because it pays for rebuilding your home or repairing damages, say, to a roof, at today’s current prices.
Actual cash value is another form of coverage but it’s often a poor choice. Imagine your roof is 15 years old and has a 20 year life expectancy. Your insurance payment for replacing the roof at its depreciated “actual cash value” will often be too little to get the job done. Again, you’d find yourself having to pay a sizable portion of that new roof installation.
A third form available from some insurance carriers is known as Extended Replacement Cost coverage. It pays the actual cash value costs plus an additional agreed-upon amount, often 20 to 30 percent. This extended coverage may be adequate, but the choice is always yours. Be sure to talk with your insurance professional when buying or renewing your homeowner’s policy.
In the case of home remodeling and renovation, the key is to make certain your coverage limits are enough to cover the improvements being made … before you begin building. A nominal increase in your premium is far preferable to facing a cash crunch because your insurance isn’t sufficient.
CAUTION: If the value of your home has dropped since the 2008 housing crisis, reducing your homeowner’s insurance is not a good way to save money on your premium. You need to consider the difference between the depressed market value of your home versus its replacement cost. In the event of a serious storm, fire damage or other hazard, you’d find today’s cost of reconstruction is likely to be much higher than your homeowner’s policy will cover if you reduce coverage to its current market value. [1]
TIP: Professional replacement cost estimators can help you get an estimated replacement cost for your home and your renovations. These estimates will reflect the upgrades you’re making as well as any unique building materials or architectural features you are incorporating. Also, check your policy to see if it includes an “inflation guard” provision. This automatically updates your coverages at your annual renewal to account for increased costs of labor and materials in your area. If you need help with these or other issues, feel free to contact a Quoteasy professional.
Check Out Your Contractor’s Insurance. It’s Critical!
Contractors wear many hats. A general contractor has employees who may specialize in carpentry, plumbing, electrical work and so forth. The general contractor should carry a workers’ compensation policy that covers injury to the employees and their lost wages if they are hurt on the job. If the general contractor does not carry worker’s compensation the employees can sue you for their injuries and lost wages.
TIP: You are entitled to obtain and study the general contractor’s Workers Compensation Certificate of Insurance. It provides evidence of insurance, the policy’s expiration date and limits of liability. If you’re planning to hire a general contractor, take a few minutes to learn more [2] about this important certificate.
However, even with proper workers’ comp insurance, you could find that your general contractor doesn’t have all the skill sets on his payroll needed to complete your work. He may sub-contract with others who are not his employees. Those sub-contractors may or may not have taken out workers’ compensation coverage on themselves or their employees. Once again you may find yourself being sued for medical care and lost wages following an accident.
TIP: These “what-if” scenarios may sound, at first, like minor issues; problems that you probably won’t have to deal with. Besides, if your contractor’s workers comp coverage is too low to give you comfort, you’re not likely to have him upgrade his coverage. Fortunately, there’s a simple answer. Contact your insurance professional to see if you can extend the liability portion of your homeowner’s policy, or obtain an umbrella policy, to cover the hazards you may face during the remodeling. It’s a simple step. It’s inexpensive. And it gives you peace of mind knowing you and your family are covered against potentially catastrophic financial problems.
Dangers of Becoming Your Own General Contractor
Just as you need to know the general contractor you hire is properly insured, you need to be sure you’re properly insured if you decide to hire sub-contractors on your own and act as the GC. You may need to increase your liability coverage as described in the tip above. Or, you may find that taking out a workers’ compensation policy for the duration of the remodeling or renovation is necessary. However, workers comp laws are complex. Before you begin your project or hire contractors, take a moment to contact us to discuss the best way to protect yourself.
Take Extra Care on DIY Projects
Not a day goes by that thousands of do-it-yourselfers tackle an electrical, plumbing or carpentry project at home. The vast majority of them work out well – otherwise our friends at Lowes, Home Depot and other such stores would long ago have gone out of business. But it’s important to watch your craftsmanship and make certain you’ve tightened up that new plumbing … properly installed shingles on the roof of a new room … installed new electrical circuits according to code. Your homeowner’s insurance probably contains workmanship exclusions. For example, if you notice a slow leak that damages your new room addition due to improper installation of shingles, your insurance will not pay for repairs. Likewise, if you’ve installed an electrical circuit that with an over-rated circuit breaker that leads to a fire, your insurance will not cover your damages.
Need Free Professional Advice?
The Quoteasy insurance professionals are here to deliver the best coverage and protection for your home remodeling or renovation project. If you’re planning to add new security features to your home, a new roof or upgraded HV/AC systems, you may be entitled to a discount on your policy. We’ll help you find that from among the many national carriers we represent. Contact us or call 305-587-2410. We’re here to help.
Source
(1) http://www.clarkhoward.com/news/clark-howard/insurance/resist-temptation-lower-your-homeowners-insurance/nDzsJ/ (2) http://workcompconsultant.com/c1-work-comp-certificate.htm
