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If you’ve ever watched the 1986 Tom Hanks movie “The Money Pit,” you already know about renovations gone wrong. What’s the worst that could happen?
Well … for starters, contractors could get hurt or they could accidentally hurt other people who come onto your premises. Contractors can also accidentally damage your property or burn your house down. Then there’s shoddy work. Some projects could actually damage the structural integrity of your home.
Fortunately, you don’t have to say NO to the updated home of your dreams. You just need to check with your insurance agent … before your projects begin.
While we can’t help with every “money pit” scenario, we can help you avoid the ones that involve insurance. Below is a list of the top 10 insurance mistakes homeowners make while renovating.
Mistake #1: Failing to verify that the contractor has current licensing and bonding.
Before contractors can perform work, they need to meet the state’s licensing and bonding requirements. But don’t just assume that all requirements are being met. Do your due diligence by verifying that the contractor’s license is current.
Don’t be afraid to ask the contractors you’re considering for licensing details. Once you have the license number, you can go online to check whether it’s current. In Washington, you can verify a contractor’s license through the Washington State Department of Labor & Industries at https://secure.lni.wa.gov/verify/.
Mistake #2: Forgetting to double-check the contractor’s general liability insurance.
You should also verify that your contractor has insurance – and that the coverage amounts are high enough to cover any losses you might experience.
Get a copy of your contractor’s General Liability Insurance Proof of Insurance. Verify that the general liability coverage limit is at least as high as the value of your property. We recommend that you call the insurer to verify coverage is still in force. Otherwise, you won’t know if the coverage has been cancelled since the document was issued.
Mistake #3: Not requiring proof of workers’ compensation insurance.
What happens if the contractor or an employee of the contractor is hurt on your property?
Hopefully, the injured worker will be covered through workers’ compensation. If there is no workers’ compensation coverage, however, the injured worker might try to go after your homeowners insurance policy.
You don’t want to be on the hook for injuries, so make sure adequate workers’ compensation insurance is in place to cover all workers who will be on your property.
Mistake #4: Forgetting to have your coverage limits adjusted.
No additional coverage may be needed if changes are just cosmetic, but it’s good to verify. If the value of your home will change as a result of renovation, you may need higher limits, or you may need to secure a builders risk policy which specializes in providing insurance coverage for homes under renovation. To avoid problems, you should talk to your insurance agent about your coverage limits before the renovations start – not after they’re finished.
Mistake #5: Moving out and not realizing that your home is considered a vacant property.
Whether a house is occupied or vacant can have a big impact on risks. Vacant properties, for example, can be vulnerable to burglaries and vandalism. There’s also a risk that problems will go unnoticed, allowing them to get worse.
Because of this, insurance contracts treat vacant properties and occupied properties differently. If you move out of your house while renovations are occurring, your house might be considered vacant under the terms of your insurance contract. Read your contract carefully and talk to your insurance agent.
Mistake #6: Not understanding that your insurance policy includes a construction deductible.
You might know that you’ll have to pay a deductible if you have a claim. But did you know that the deductible amount can vary depending on the claim scenario?
If you experience a loss related to your renovations, you may be responsible for a construction deductible. This deductible can be 5%, so it’s nothing to sneeze at. The good news is that you might be able to avoid it. Talk to your insurer – before you begin renovations – to understand when you would be responsible for this deductible.
Mistake #7: Signing contracts that waive their insurer’s legal right to subrogate.
Insurers sometimes recover losses by pursuing a third party that is responsible for the loss. This practice is called subrogation, and the right to subrogation is important for insurers.
Homeowners do not have the legal right to waive their insurer’s rights. Nevertheless, a contractor might ask you to sign a contract in which you waive the insurer’s right to subrogate.
Such a contract should be unenforceable, but it may still cause complications and disputes if there’s a claim. Avoid problems by not signing anything that’s beyond your rights.
Mistake #8: Forgetting to have the contractor remove the Hold Harmless agreement from contracts.
Hold Harmless agreements are pretty much exactly what they sound like – agreements not to hold the other party responsible for losses.
They’re also usually a bad idea in renovation contracts. Although you’re hoping that nothing will go wrong, the reality is that there might be a problem, and your contractor might be liable. A Hold Harmless agreement can make claims difficult. Ask to have it removed.
Mistake #9: Failing to have the contractor add you as an Additional Insured on the liability insurance.
Being listed as an Additional Insured on the contractor’s liability insurance policy can give you additional protections. As the homeowner, ask to be added as an Additional Insured on your contractor’s policy.
Mistake #10: Failing to run everything by your insurance agent before the project starts.
This is probably starting to sound familiar. To avoid problems, you want to talk to your insurance agent BEFORE renovations begin. This way, you’ll be sure that you have enough coverage. And if your renovations exceed 10% percent of the home’s current insured value or a certain dollar amount, typically your policy will likely require notice – however, it’s always best to contact your agent.
Your insurance agent can also provide advice on various risks and guide you through possible scenarios. You don’t want to find out that something isn’t covered, or that you have a higher deductible, AFTER a claim occurs. Talk to your agent first.
Written by Corrie Craig and Sue Greer