Remodeling? Make sure you have
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.
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
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."
"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
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