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A home remodeling project is something many people will tackle at some point in their home ownership. Regardless of the magnitude of the remodel, you can minimize your risk of financial loss by making sure the right insurances are in place before and after a remodel. It's easy to hope nothing is going to happen, but an incident is much more likely to happen during construction. Failing to address this possibility beforehand can cost you hundreds of thousands of dollars.

Before the Remodel

The most important thing you want to do before you agree to hire a contractor is to make sure the company has a contractor's liability insurance policy in place. The minimum amount of coverage your contractor should have is a million dollars. If the contractor has workers, then you should ask for a worker's compensation policy. In some cases, the contractor will state that the workers are sub-contractors and thus not true employees, so they don't need worker's compensation insurance.  However, the legal system may very well view these "subcontractors" as employees. As such, this can =put you at risk should an injury occur to any of these workers.

Here are the characteristics of true subcontractors:

  1. They have contractor's licenses.
  2. They have their own insurance.
  3. They specialize in one type of contracting.
  4. They may have employees.
  5. They have their own vehicles and equipment.

If most of these characteristics are not present, then there is a good chance the legal system can deem them as an "employee" of the general contractor. Again, this can put you at risk if the contractor does not carry any worker's compensation insurance. It's worth paying more to hire the right contractor than have to deal with a contractor that doesn't have the right insurance in place.

A contractor without appropriate insurance in place rarely wants to admit this. This is why it's important to ask for a certificate of insurance for these policies directly from the contractor's agent. Make sure the dates are current or will at least offer coverage throughout the duration of your remodel job. If the policy is going to expire in the middle of the project, make sure you get an updated certificate.

In addition, you may also want to secure a builder's risk policy for the uninstalled material that is stored on the premises. Depending on your remodel situation, this may or may not be covered by your homeowner's insurance. Please check with your agent or company before you plan on having raw materials stored on your property. It also best to discuss any other insurance issues with your agent.

After Construction

Once construction is complete, you should review your homeowner's policy coverage with your agent. The top priority is to make sure your home is fully insured according to the new rebuilding value. If you have done an interior remodel and not an expansion, you have likely increased the cost per square footage. If you have done an expansion, then you need to account for your additional square footage. Your agent will do an updated replacement cost estimate, which will take into account the characteristics of your rebuilt home. This is extremely important, since you have invested tens of thousands of dollars upgrading your home. You need to update your coverage to protect that investment.