How insurance figures into home improvement
Whether you're adding a room or a deck or delving into some other home improvement project, if you're hiring someone to work on your house, you've got insurance concerns that must be addressed. Chances are, when you're hiring a contractor, you first want to evaluate the quality of work done by his or her company.
But once you've decided on a high-quality provider for your project, you still have something to check before you sign a contract. No, not price, though that's important, too. You need to make sure you're not opening yourself up to slew of costly risks during the project.
Your home insurance and renovations
Americans spent $176 billion on renovation projects for buildings they owned in 2011, according to the most recent report on remodeling from Harvard's Joint Center for Housing Studies. But that's just the amount spent on construction. No matter how competent or careful a contractor might be, there's always the chance of an accident on the project. That's why you must make sure you're protected financially should something happen on your property.
While standard home insurance policies typically include personal liability coverage, which steps in if a visitor to your property injures himself or herself, that coverage sometimes doesn't extend to contractor accidents.
What you need to see from a contractor
The Better Business Bureau recommends that you ask your contractor to produce a certificate of insurance for his or her general liability coverage. What does this do? It helps in the event the contractor suffers an accident or makes an error that damages your property. It also kicks in if the accident or error damages a neighbor's home or property. Be sure to check out the limits and the date the policy expires.
Another issue that could crop us is an injury to a worker on the project. Check out your prospective contractor's certificate of workers compensation coverage. If the contractor doesn't have this coverage, you could be held responsible for medical costs in the event one of their workers is injured on your property and decides to file a lawsuit.
Even if your contractor passes these tests, it's a good idea to make sure your liability coverage also is adequate. Limits often begin at $100,000 – this may not be enough; remember, your home will be a construction site and friends and others who visit will be at greater risk of injury. Consider increasing your liability coverage while the project is underway, you can always reduce your limits again once construction is complete.
When it's all done
Your home improvement insurance worries will be reduced once construction is complete, but they won't be completely gone. That's because your home improvement may have substantially increased the replacement cost of your house.
That means you must increase the amount of dwelling coverage you have in your home insurance policy. Dwelling coverage is what protects the physical structure of your home from certain perils, including fire, wind, and hail. Your dwelling coverage limit should be set at the amount of money it would take to rebuild your house should it be destroyed by a covered peril.
But now that you've improved the house, it will take more money to rebuild it. So you'll need to talk with your agent about increasing the amount of coverage you have.
If you've added a room, you could use a dwelling coverage calculator to get a rough idea of the new value. Calculators work by multiplying the square footage of your home by local construction costs (determined by entering your ZIP code). They return three numbers: the amount of coverage you'd need for a standard home; the amount if you've made some upgrades – such as granite countertops; and the amount if you've fully upgraded the residence with custom features.
This guest post was contributed by Arthur Murray, editor of the HomeownersInsurance.com blog, which serves as a resource center for insurance consumers and homebuyers across the country.