A home renovation can be an overwhelming experience with high stakes for your clients. There’s creating the overall vision of the project, gauging its financial feasibility, finding a reliable contractor, and hoping for a smooth construction process. But an important consideration that often falls by the wayside is 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 involved, says Mark Komiskey, Director of Homeowners Products at Esurance. He recently shared five insurance tips that you can pass on to your clients to help keep them 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 your clients that if they fail to notify the insurer and don’t reconsider coverage offerings for the home, they could be surprised by more than the “big reveal.”
Once the project’s completed, homeowners should make sure that 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.
Moreover, it’ll likely be necessary to increase the liability coverage limit for the duration of the project. If, for instance, a neighbor is injured on the worksite, the homeowner could be exposed to unforeseen legal and medical fees.
2. Confirm the general contractor is licensed and bonded.
Before your clients greenlight 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 your clients 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 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. Say your clients had an overhead door installed, and one day the door malfunctions and closes on top of their car. If carried by the contractor, completed operations insurance 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 your clients’ long-coveted dream home into a reality.