Many homeowners make a New Year’s resolution to do some home remodeling perhaps adding a new bedroom or finishing the basement to make it livable. These are good ideas that can help homeowners accommodate their needs without having to incur the cost of moving to a bigger house and leaving their neighborhood.
When undertaking a home remodeling project, it is important to have everything organized. Make sure you are clear with the general contractor on exactly what you want and that you are both on the same page. This can potentially save you a lot of trouble down the road having to re-do parts of the project that did not meet your expectations. Another area to make sure you have everything covered is insurance.
Many homeowners mistakenly trust that the contractor has all the necessary insurance to take on the remodeling project. This includes what is called a Builder’s Risk policy, which the contractor may or may not provide. However, whether they are providing this insurance or not, it is important that you know in detail what is being covered.
Here are some important considerations in taking out a Builder’s Risk policy:
The Coverage Limit Should Match or Exceed the Project Budget
When deciding what the coverage limit of the policy should be placed at, the best estimate will come from the project budget itself. For example, if you are finishing your basement and have a total budget of $20,000 for the job, then this is a good starting point for determining the coverage limit. You may want to add around 20% to this figure to insure for cost overruns, which in this example would bring the limit up to $24,000.
Understand the Policy Exclusions
A typical Builder’s Risk policy will insure for damages to the structure you are remodeling up to the policy limitations. This usually covers for incidents such as:
- Wind (in most parts of the country)
However, it is important to understand that a Builder’s Risk policy will usually have similar exclusions as a standard homeowner policy. This means it may not cover incidents such as:
- Employee Theft
Coverage such as earthquake and flood insurance can be purchased separately in most parts of the country.
Understand your Available Coverage Extensions
Some important Builder’s Risk policy extensions you may want to consider ensuring your property is fully protected include:
- Property in Transit (such as building materials)
- Property Being Temporarily Stored
- Sewer/Drain Backup
- Debris Removal
- Fire Department Service Charges
Be sure you have the most important coverage extensions for your specific project.
Other Insurance Considerations
In addition to having Builder’s Risk or some kind of Course of Construction insurance policy, it is important that your general contractor has separate workers’ compensation insurance to protect all employees working on your premises from injury. They should also carry their own liability coverage to insure against damage the contractor (and any subcontractors under their supervision) does to another person or the property.
Home remodeling insurance coverage is important to ensure that your project does not expose you to certain liabilities. If you are unsure what types of insurance are needed for your remodeling project, speak to your insurance broker and make sure you have everything organized ahead of time.
About The Author
Todd Balderson has been protecting families and businesses through insurance coverage since 1996. He is the founder of Balderson Insurance Agency and serves clients in Maryland, DC, and Virginia. Todd is known for reminding people about how “insurance is more crucial to building your wealth than investments because without insurance, it’s easy to lose your assets.” Learn more about Todd and the insurance protection he offers at http://www.BaldersonInsurance.com