Insurance Needs When Remodeling
Home improvement projects are very popular, especially when the economy and the housing market are doing as well as they are now. When remodeling, many people use general contractors, while some choose to manage the project themselves. But one factor that many people fail to consider is the fact that no matter who manages the project, everyone involved in it, from the homeowner to the plumbers and tile installers, must have appropriate insurance coverage.
Why your homeowner’s policy may not be enough
The first step you should take when embarking on a remodel is to obtain copies of your general contractor’s insurance certificates, as well as his subcontractors’. Then make an appointment with your insurance agent to do a comprehensive review of the contractor’s policies and your homeowner’s policy.
There are four things you need to look for in your homeowner’s policy:
- If you are doing any of the work yourself, make sure your policy allows for it and under what conditions. Certain projects can void some insurance policies if not undertaken according to the policy's terms.
- Make sure your policy limits for bodily injury and property damage are sufficient to cover you during the remodeling project. You might need an umbrella policy, which we discuss in this post.
- Make sure your home and all of your property are covered during the project. For example, let’s say you move your furniture out and put it in storage. If you decide to store it in a Pod in your driveway, your policy may or may not cover the contents of a container kept on your property. If you store things at an off-site location, you might need a separate policy to cover them. Have your agent help you decide what to do.
- Consider buying a builder's risk policy to cover construction materials. Your homeowner's policy covers your belongings, but it does not cover the equipment and supplies workers bring onto your property. A builder’s risk policy will cover you if someone steals your new copper pipes or other materials before they are installed.
Another reason to have this coverage is that your contractor's general liability policy does not cover damage to any new work the contractor does. For instance, if you enclose a porch to create a new room and faulty wiring causes a fire, your contractor's policy will cover damage to the pre-existing areas of your home, but not to the new room he just built. In such cases, the general contractor himself is liable for damage to the addition. But some who find themselves in these situations avoid paying damages by shutting down their LLC and opening a new one. If the worst happens, you'll still be protected if a builder's risk policy is in place. If your contractor doesn’t have one, you can buy one yourself.
Once the work is finished, you’ll want to check with your agent to see if you need to make any changes to cover the new value of your home.
Making sure your contractor is adequately covered
- Make sure your general contractor is licensed and has a surety bond, and don’t take his word for it. Ask for copies of the documents. If he isn’t licensed, you have no recourse if something happens. If he can't finish the job, the bond will protect you from any financial losses you may incur in getting the job finished.
- Make sure you have a written agreement with your contractor which states that all required permits will be obtained and all work will be done according to current building codes.
- Have your insurance agent evaluate your contractor’s liability and worker’s compensation insurance policies. You want to make sure not only that there is a policy in place, but that the coverage is adequate and will be in effect for the duration of your project.
- Make sure the general contractor knows whether his subcontractors are covered and for what amounts. Ask for their coverage certificates if there is any doubt. Their contracts should include a hold harmless clause and an indemnification clause stating that the subcontractor, not the general contractor, is liable for any damages he/she may cause.
- Confirm that your contractor’s policy provides completed operations coverage for things that may go wrong after job is done. This would cover you if, for example, a plumber failed to insulate a pipe and it bursts, causing water damage.
Finally, don’t be shy about asking for any of the documents we’ve mentioned. If your contractor is offended or irritated by your request, or doesn’t want to provide them, then he or she is not someone you want to work with anyway. He may be surprised by your request - one contractor we know says that only one in 20 customers asks him for these things – but he won’t mind complying with your request.