Don't Lose Your House Trying to Improve Your Home

Remodels change your home, change your insurance coverage

By Troy Stowe - Personal Insurance, Sales Executive V.P.

No matter whether you're "just" upgrading the master bathroom or the kitchen cabinets and counters, whether you're moving a couple walls and adding some square footage, or whether you're planning a front-door-to-roof total remodel, call your insurance advisor to review your homeowners policy - before you start.

Minor upgrade, total remodel or somewhere in between, the value of your home will change and your homeowners insurance protection needs to change with it.

And because of material/property damage and worker injuries that can occur during the remodeling process, it is crucial to make sure that your insurance coverage properly protects you during the process as well as after.

Any time you're seriously thinking about remodeling - and before you commit to plans and who's going to do the work - call your insurance advisor and talk with him or her about your project. All too often a homeowner remodels, large or small, and never tells his insurance advisor. The insurance policy on the property is never changed to reflect the physical upgrades - and with it the upgraded replacement value - and then when a tree falls, a fire starts, a pipe breaks or other damage to the property occurs, the homeowner is stuck with the policy's coverage limits - limits covering only an earlier pre-improvement value. A couple of years down the road you do not want to learn that the $50,000 or $350,000 you put into your home remodel was not insured and so is gone with the fire's smoke.

A good insurance agent will periodically contact his client to review any changes or upgrades made to the home, and a responsible homeowner will respond with details so that the policy can be adjusted to protect the actual structure or structures of the current home.

So call your insurance advisor before you commit to the project, as needed during the project, and then again before the project is complete and you move back in.

The first question for you and your insurance advisor is who is going to do the work? Each insurance carrier is different in what exactly it will cover and what it excludes. The variations are detailed and complicated, but typically speaking, the major insurance carriers will cover a remodel only when a licensed and bonded general contractor does the work. Most carriers will not cover work done otherwise, forcing any homeowner to take a giant gamble if he does the work himself or with friends and relatives. Because construction-related insurance involves not only damage to materials but also quality of installation and injury to people working (liability), the stakes are huge.

So before you start, your insurance advisor will want to review your existing homeowners policy. And, your advisor will want to ensure you have in your hand a copy of the general contractor's Certificate of Insurance. As the liable homeowner, you want proof that your general contractor has appropriate and in-force workers' compensation coverage and general liability coverage.

In addition to the contractor's Certificate of Insurance, depending on the size and scope of the project, your insurance advisor may suggest you be specifically added to the contractor's policy for the duration of the job. Many contractors have blanket "additional insured agreements" just for this purpose, so it should add no cost to the contractor, but if not it could be worked into the bid price.

The next piece is to make sure the (new) materials and structure (both existing and new) are protected during the remodeling process. It is, again, complicated and each company does this differently, so be sure to ask the questions and understand the answers. Depending on your existing homeowners policy and the size of the remodel project, your insurance advisor may counsel for a builders risk policy that covers any theft of or damage to the materials being used in the remodel work. A solid builders risk policy covers any theft and any damage to materials by any cause except flood or earthquake. (This policy takes on added importance with the size of the project, and with any new construction.)

Either the homeowner or the contractor can carry the builders risk policy - everything's negotiable - but generally you want to make sure your project has one. On average, a builders risk policy for a $250,000 remodel in Montana ranges up to 32 cents cost for every $100 of material value protected.

If your project involves a builders risk policy, your agent will counsel you to move no furniture or other possessions back into the home until the project is totally completed. Moving a sofa or anything else back into the home voids the builders risk policy, which would make the (pre-remodel) homeowners policy your only protection.

Then, are you staying in the home during construction? Moving out and into a rental place? Moving any furniture or other possessions into storage? Make sure your homeowners policy and perhaps an add-on renters policy covers anything that temporarily moves off site. A homeowners policy typically covers items put in a rented storage facility, but make sure.

An umbrella policy is another topic to discuss with your advisor - especially for larger projects and when you are moving out during construction. Residential construction projects are attractive places to explore for neighbors, friends and strangers "wanting to see what's going on" and especially for children. Especially after hours. Construction sites are also full of any number of hazards and ways someone could get injured. An umbrella policy is for liability exposures, providing financial payout limits above and beyond your other policy limits; it comes into play if the homeowner is deemed liable for damages and potentially catastrophic dollar figures. An umbrella policy can prove an inexpensive way to cover your assets. 

Finally, as you complete stages of your remodel check in with your insurance advisor and increase your coverage as needed throughout the project. The goal is to make sure the value of your home always stays within 80 percent replacement cost for full enforcement of your insurance coverage. Problems arise for example if a $50,000 kitchen remodel is completed early in a remodel (adding value to the home and its replacement costs) but the insurance coverage is not adjusted at that point and there is a fire or other loss to the home - in that case your insurance policy may only pay actual cash value at time of loss and you would be left staring at a large financial hole. Some homeowners choose to bump up their coverage to the anticipated final value before the project starts and others adjust coverage as the project progresses. This will affect your homeowners insurance premiums but it is well worth the addition premium for the protection. The main point is to make sure to stay in communication with your insurance advisor.

With your agent in the communication loop, when your project is about 30 days from completion call your agent again to start the process for a new, updated home valuation, and make any final adjustments needed to protect your "new" improved home.

Just as you planned and tracked the details of your project, your agent will want - need - to know all the final installed details: added square footage, cabinet materials, counter tops, flooring, appliances and brands, fireplaces, etc. Your friends might have wanted all the details because they were curious, but your agent wants all the details to ensure that your new/remodeled homeowners insurance policy accurately protects all the work done. The homeowner policy's purpose is to make your home whole again if there's a fire or other damage. If you put in cherry kitchen cabinets, stone counters and Bosch appliances, you don't want an insurance policy that will replace them with oak, Formica and Maytag. Knowing about new electrical, plumbing, heating and roofing, sound systems, etc., is also crucial to an accurate valuation. Security systems, water monitors and sprinklers, among other safety measures, may qualify for discounts to your premium. And, don't forget any exterior structures that were added: detached garage, hot tub, landscaping, tool sheds, fencing, etc.

You remodel your home to change it to fit better how you want to live - make sure your insurance coverage gets upgraded with it. Talk with your insurance advisor before, during and after your project.

Troy Stowe is an expert in homeowners insurance no matter whether you're building, remodeling or happy with what you have where you are. Troy is located in the Billings office of Payne Financial Group. He can be reached directly at tstowe@pfg-insurance.com.

Don't lose your house trying to improve your home