Remodeling can open the door to big spending — and to home insurance claims.
“Remodeling is like taking a long car ride across the country,” says Kevin Anundson, vice president of design and sales at Renovations Group Inc. in the Milwaukee metropolitan area. “The first few hours are fun, when you’re singing songs and enjoying each other’s company.” But then it hits you that there’s a long way to go before you get to your destination.
Without the right insurance policy, injuries and mistakes along the way can add a lot of cost to an already expensive project. The average discretionary remodel — something like a kitchen makeover, a new deck or a room addition — cost $11,088 in 2015, according to Harvard University’s Joint Center for Housing Studies.
“You can enjoy the rest of your journey if you’re properly prepared,” Anundson says. A key part of that is making sure your insurance is in order. Here’s how.
Before you start: Contact your home insurance company or agent
Once you’ve decided to remodel, let your home insurance company know, starting with your agent. Some insurers will deny claims that arise during remodeling or will cap the amount they’ll cover if you don’t tell them about construction ahead of time, says Lisa Lindsay, executive director of the Private Risk Management Association.
Your agent can go over your policy and help you understand what it will cover during construction. Whether you need to add coverage will depend on how large the remodel is. “With more people involved in a project, the more likely it is something will go wrong,” Lindsay says, and that means you’re more likely to file a claim.
Your agent may suggest adding a “course of construction” policy to your existing homeowners insurance. Also called a builder’s risk policy, this pays for problems during construction like fire, explosions, theft of materials and vandalism.
Shopping contractors: Check the paperwork
If you’re not a highway patrol officer, asking to check someone else’s insurance may feel weird, but this is an important step.
The National Association of the Remodeling Industry is a trade group that requires member companies to have complete and up-to-date insurance coverage and licensing. NARI’s website can help you find a contractor whose insurance and license are up to date, says Anundson, whose company is a NARI member. If you choose a non-NARI contractor, you should know what your state’s insurance requirements are for licensed contractors, he says. Your state’s department of insurance website likely has this information.
You’ll also want to make sure any contractor is bonded. A surety bond is like insurance that pays you, the property owner, if the contractor fails to complete the job or meet other obligations like paying for materials or repairing damage to your home caused by a worker.
If the contractor brings in any subcontractors, such as plumbers or electricians, it’s best to check their insurance, license and bonding, too.
How to check a remodeling contractor’s paperwork
- Ask to see the contractor’s license, proof of insurance and bonding.
- Make sure none is expired and take copies, or snap a photo with your phone, if you can.
- If you can’t take a photo, write down the following:
|Insurance||Company name, policy numbers, expiration date|
|Bond certification||Company name and phone number, bond number|
|License||Government department name, license number, expiration date|
If you’re going the DIY route
If you’re doing the project yourself, perhaps with some family or friends lending a hand, ask your insurance agent whether you have enough liability coverage in your homeowners insurance policy. Many policies provide at least $100,000 in liability coverage, which pays for things such as medical bills and lost wages if someone is hurt in your home or due to your negligence. If someone gets seriously injured during the remodel, that amount may not be enough, so an agent may suggest increasing your liability limit.
You can find your current liability amount on the declarations page of your homeowners policy.
Before construction: Discuss safety and security
Home insurance claims for disasters like fire, water damage and theft are more likely when work sites aren’t kept tidy and secure, Lindsay says.
Claims during remodeling can be caused by careless mistakes or unsecured premises, she says. For example:
- Equipment or heaters left plugged in, causing electrical fires
- Oily rags lying around that catch fire
- Theft of equipment left on site
- Vandalism after hours
Your contractor should have a safety protocol in place and be able to explain it to you, Lindsay says. It should include steps that workers take to prevent injuries and damage to your home, and the procedure for locking up equipment, supplies and the work site every night. Consider installing an alarm system if construction materials will be unattended at night.
During construction: Daily inspections and upgrades
“There is no such thing as ‘too safe,’” Anundson says. As each day of construction closes, check that the site is still secure and safe. Look for and correct such issues as:
- Cords plugged in or left in walkways
- Nails and hardware left about
- Unlocked windows and doors
Choose safety-enhancing materials
A remodel is an opportunity to upgrade with materials that can help prevent or reduce an insurance claim down the road, Lindsay says. Examples include hurricane-resistant windows and stronger roofing materials.
After construction: Update your policy
When construction ends, give yourself a pat on the back. You have something beautiful to show for your money and time, although there’s a good chance it took longer and cost more than you expected.
Now is the time to call your home insurance agent to make sure your policy is sufficient for your newly remodeled house. Your updated policy should reflect your home’s new insurance value — meaning the total cost to replace it — so your insurer may request copies of your records and receipts, according to the Insurance Information Institute.
Once that’s finished, all that’s left to do is enjoy your upgrade, knowing it’s properly insured.