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Remodeling? Make sure you have insurance coverage

Sharon Hanby-Robie has many stories about remodeling. A real estate agent, interior designer, host of the DIY Network's Ask DIY and author of "My Name Isn't Martha, But I Can Renovate My Home," she has been through, seen or heard just about everything to do with home improvements.

The really scary stories all seem to deal with insurance.

Like the friend who put some furniture in storage during a renovation and then the storage building burned down. Or the makeup artist who bought a house with her fiancé and hired a friend of a friend to do some work. They told him not to try to reach a peak on the roof because it was too dangerous. He tried anyway, fell, wound up in the hospital and sued them.

"I do want to scare people a little bit," Hanby-Robie admits. "I want them to understand the issues because they're critical. That's what prompted me years ago to carry all kinds of (general liability insurance) because I talked to my insurance agent and it scared the bejabbers out of me."

Make no mistake, remodeling is a huge business. The Joint Center for Housing Studies at Harvard University reports that homeowners spent nearly $138.1 billion on home improvements in 2004.

The most popular remodeling projects are spiffing up the kitchen or a bathroom, renovations that can easily cost thousands of dollars. According to the annual survey done by Remodeling Magazine and the National Association of Realtors, even a "minor" kitchen renovation averages $14,000-$15,000.

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Yet, for all the money homeowners are putting into their houses, they pay little attention to the insurance issues related to remodeling. That's a mistake, experts say. Before homeowners start remodeling, they should talk to their insurance agents.

What's the real value?
The first item on the agenda should be how much the project will increase the value of the house, says Don Beery, vice president and partner at Eustis Insurance in New Orleans. Experts estimate that one-fourth of remodeling projects add at least 25 percent to the value, yet most homeowners don't increase their coverage to protect that investment.

Berry recommends making the change before work begins so there's coverage during the renovation.

Hanby-Robie couldn't agree more.

"God forbid there is a fire in the middle of the construction," she says. "In most cases, insurance only covers 80 percent of replacement value and you've just added 25 percent in value. The time to think about raising insurance is before you start the project."

Beery also says to watch out for over-insuring. Most people think they need to increase their coverage by the same amount as the cost of the renovation. That's not the case because often a big part of the cost is tearing out something old.

Homeowners should ask their contractors what they would charge if they were building the house from scratch, with the added improvements. That's the amount that needs to be insured because that's what it would cost to replace the loss.

If the renovation is a do-it-yourself project, the homeowner assumes all the risks himself and needs to review his own coverage for liability and property damage, especially if he's hiring subcontractors or paying friends to help do the work. If they're injured while they're on the job, the homeowner can be liable for workers' compensation payments.

If a couple of buddies are just helping out as a favor, homeowners insurance should cover it if someone gets hurt. Still, Beery recommends that all homeowners carry umbrella liability coverage, additional insurance that kicks in when a claim goes above the normal limits.

Question your contractors
Hiring a contractor doesn't get homeowners off the hook, though. There are plenty of questions that need to be asked.

William Owens, a certified graduate remodelor in Columbus, Ohio, tells consumers to always request a current copy of a contractor's certificate of insurance, which will list the kinds and amount of insurance he has. It should include general liability, workers' compensation and auto coverage. Owens has a certificate, but no one ever asks to see it.

"I bet I've produced an insurance certificate twice in 20 years," he says. "People do ask, but they don't ask for it to be substantiated. They accept it on blind faith."

They shouldn't.

"It takes one miswired outlet, a $50 job, to cause a major fire," he says. "So the guy says he has insurance. What does that mean? Just because they advertise they're licensed and insured means nothing. Not everybody out there is insurable. The proof is in producing the certificate of insurance. It will show the types of insurance and amount of insurance."

If a contractor says he has insurance but can't produce a certificate, show him the door.

"If he says he can't get you one or his agent doesn't do those on small jobs, that's a crock," Beery says. "We issue them constantly for jobs. It's a routine matter of business that is done all the time."

Beery goes as far as to say it's not enough to ask the contractor to produce his certificate. The homeowner should have the contractor's insurance agent send it to him directly. That way, he's assured that the policy is current and in force.

It's important because insurance rates in the construction industry have risen dramatically in recent months, Owens says. Many remodeling contractors are one-man shops; it would be very tempting to let the coverage lapse in the face of a premium hike.

At the same time, homeowners should ask the contractor if he's tracking his trade contractors (remodeling lingo for subcontractors) to make sure they're insured. Owens says that's the mark of a savvy consumer.

Hanby-Robie says it's evidence that a person understands just how many things can go wrong in a renovation and how big a decision he's making.

"It's your house," she says. "It's the biggest investment of your life ... If you hire a contractor, they're bringing in subs. Make sure they're all covered. Those are the guys at the bottom of the feeding chain.

"That's where you need to make sure you have certificates. What if there's a robbery? There were all these strangers in your home. Who's liable for that? This is when you need to become best buddies with your insurance agent."

-- Updated: April 15, 2005

 

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