The Insurance Information Institute recently published survey results that showed that 70% of homeowners do not know that the materials or fixtures intended for installation during renovations are not covered by a standard home policy.
Another 40% didn’t notify their insurance provider that a renovation was taking place, which led to lapses in coverage.
What other insurance-related surprises can you avoid as you prepare for your home renovation? Here are five key steps.
Contact Your Insurance Provider
Before a single worker steps foot on your property, call your insurance provider and let them know what you are planning to do. Some insurance policies even require a 30-day advance notification of work and could have a penalty if a claim is made, so it is better to reach out beforehand so you don't get bad news later.
Your insurance underwriter is a valuable resource for understanding what is covered and what is not covered during a renovation. Any home construction comes with increased risks (particularly fire), so your underwriter may increase your current coverage to better protect what you already have. He may also be able to advise you on how to get additional coverage for the renovation-related items your current policy does not protect.
Renovations will also typically increase home value and coverage needs. A new room often means more furniture, a new kitchen could mean higher-end appliances and surfaces, and a newly finished basement could mean the installation of a sump pump (which could reduce your premium). Keeping your home insurance provider well-informed is essential for adequate coverage.
And, while Mutual Assurance policies are priced at full replacement cost for the home you have, many others require only 80% of the replacement value, leaving those homes underinsured. Make sure you confirm the current value of your home with your underwriter and ask that any gaps be resolved.
Builder’s Risk Insurance
Most insurance companies require that Builders Risk Insurance (BRI) is in place for coverage to remain intact during a renovation. A BRI policy generally lasts up to 12 months (but can be renewed) and protects a home under construction from added risks like theft or vandalism of tools and materials on the site. It costs between 1% and 4% of the budget, depending on factors like the replacement cost of your completed home, square footage, and the materials being used.
Some BRI policies include liability, but most don’t. Plus, whether you need to purchase the insurance or your builder does depend on your contract. Get a copy of your builder’s policy to make sure he has adequate coverage, and share the document with your current home insurer.
Keep in mind that a standard homeowners policy will exclude losses caused by faulty, inadequate or defective workmanship. If your contractor does a poor job installing your kitchen cabinets, you may be unable to file a claim with your homeowners provider. Instead, the contractor would have to fix it, and that could be a long, legal, and costly process.
Your builder can have an endorsement added to his liability policy called Contractors Faulty Workmanship coverage. This doesn’t cover you if you don’t like the work, but it helps make sure the contractor will not be resistant to fixing something that was done poorly because he has insurance coverage for it. Check with your contractor to see if this endorsement is included in his liability policy.
Liability Insurance
If a worker is injured on your site, you don't want to be found liable for it. Make sure your contractor has liability insurance to cover workers’ compensation. If subcontractors are being used, make sure your contract specifies that they have liability insurance as well.
Make Sure Your Permits Are Filed Properly
Failure to get proper permits could result in an exclusion on your homeowners policy. For example, a new code requires all additions to be built at a specific elevation within a specified distance of a natural water feature. If your builder does not know about or ignores this, your homeowner policy will not cover the materials or labor needed to fix it if the addition fails inspection. If an electrical subcontractor fails to connect the wires at the electric panel correctly, and it causes a fire, your policy may not cover the damage to your home.
Make sure all permits are proper and all inspections are certified whenever possible. You can ask your contractor to review these throughout the process, or check in with your architect to verify this has been done.
Vacancy Permit
If you need to be out of your home for an extended period of time, the risks of theft, water damage, and fire increase. Many providers will require a Vacancy Permit or an endorsement added to your current policy. This permit is usually issued for a specific length of time and may reduce your coverage. For example, vandalism, sprinkler leakage, building glass breakage, theft or attempted theft may not be covered while the permit is in place.
Sources: Forbes Advisor, The Zebra, The Silver Lining, Let’s Renovate, GW Legal
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