Oct. 12, 2016
CHICAGO – Oct. 11, 2016 – A home renovation can be an overwhelming experience with high stakes. Investors must create an overall vision for the project, gauge its financial feasibility, find a reliable contractor and hope for a smooth construction process. But an important consideration often falls by the wayside: Making sure the project is adequately insured.
Whatever a home remodel entails, it's important that all the players involved are insured – from the homeowner to the general contractor to any subcontractors, says Mark Komiskey, director of homeowners products at Esurance. He recently shared five insurance tips to help keep investors financially sound as they consider a home renovation.
1. Notify the insurance company before the renovation
Home remodels, big or small, typically increase the value of the home and the risk borne by it – and the homeowners insurance policy should reflect this. Advise clients that if they fail to notify the insurer and don't reconsider coverage offerings for the home, they could be surprised later.
Once the project's completed, homeowners should make sure their policy aligns with the home's new replacement value. They should also account for any new items purchased for the renovation, like appliances or furniture.
In most cases, investors will need to increase the liability coverage limit for the duration of the project. If, for instance, a neighbor is injured on the work site, the owner could be exposed to unforeseen legal and medical fees.
2. Confirm the general contractor is licensed and bonded
Before investors green light a project, advise them to check that the general contractor is licensed and carries a surety bond. If the contractor fails to complete the project per the contracted agreement, the surety bond could cover the financial losses incurred as a result. The agreement should also mandate the compliance of building codes and proper permits.
Additionally, it's critical that a contractor carries workers' compensation and liability insurance, and that investors ask to see both certificates. The contractor should be responsible for not only property damage, but also negligent workmanship and injuries sustained on the job.
Like every insurance policy, a general contractor's coverage has limits, and, therefore, shouldn't preclude increasing the limits on a homeowners policy.
3. Confirm coverage for any subcontracted workers
For many home renovations, general contractors will subcontract builders, electricians and plumbers. Because these employees don't work for the contractor full-time, they're typically not included in their workers' compensation policy. As with a contractor, a homeowner should verify that subcontractors also have liability insurance.
4. Consider purchasing builder's risk insurance
Building materials and equipment belonging to the contractor or subcontractors aren't covered by homeowners insurance.
A builder's risk insurance policy, however, extends coverage to equipment or building materials that have yet to be installed or transported to the work area on the property. It's not uncommon for thieves to target construction sites, particularly if there are valuable materials, like copper plumbing pipe. In addition, builder's risk coverage offers financial protection for the portion of property undergoing construction.
5. Confirm the contractor has completed operations insurance
Completed operations insurance offers a safety net for things that go awry once the project is considered complete. If clients had an overhead door installed, and the door malfunctions and closes on top of their car, for example, completed operations insurance carried by the contractor could help pay to repair or replace damaged property resulting from faulty work.
Home improvement projects invoke a multitude of insurance concerns, but keeping the homeowners insurance company in the loop – and being proactive from start to finish – can do much to close coverage gaps and turn investors' projects into a reality.
Source: Mark Komiskey serves as director of homeowners products at Esurance and has designed and implemented property products throughout North America.
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