Home renovation projects: getting the right insurance and contracts

True story: After tearing down their house, an insured homeowner called their carrier asking to add builder's insurance risk coverage to the property. Unfortunately, not only were they not granted it, but the carrier also canceled their homeowners insurance policy altogether due to material change in risk. As required by law, they also sent a notice to the bank… which then began foreclosure proceedings.

Talk about a homeowners insurance nightmare.  

Learn from this very expensive lesson: always check with your insurer and bank before beginning major home renovations. Before you begin, get answers to important questions like: How will this change your mortgage? And does home renovation insurance even exist? (Your bank will know and yes, it exists, but it’s called a Builder’s Risk insurance policy.) 

After that, first things first. Begin by selecting a licensed professional and reliable remodeling contractor. Reach out to past customers or search online for their name along with the term “reviews” to get a feel for them and what they do. You want to be sure that the contractor you select performs quality work and that you’ll be comfortable with having them in your home.  

If you get bids from several home improvement contractors — and you should! — be sure they’re all bidding on the same scope and quality of work. Also, discuss any variation in bids and beware of ones that are substantially lower than the others. 

Home renovation contracts and legal reviews are critical 

Once you feel good about your hired contractor and the renovations you’ve planned, it’s time to make sure you have a contract in place. A clear, well-written contract is critical for any home remodeling project; it’s what holds the job together and ensures everyone is on the same page. 

Your home renovation contract needs to include:

• What the contractor will (and will not be) responsible for completing 
• A detailed list of project materials 
• Approximate start and completion dates 
• Financial terms including total price, payment schedule and cancellation penalty 
• A minimum one-year warranty on materials and workmanship 
• A binding arbitration clause in the event of a disagreement 
• Anything else you want guaranteed 

As an extra precaution before signing, ask an attorney to review the contract. Most contracts include an insurance provision that outlines what falls under your responsibility and what falls under your contractor’s. A legal review will ensure that those responsibilities are correctly assigned. 

A contract that covers these bases is a good place to start, but it can’t promise protection for everything or everyone on the job. Accidents do happen, unfortunately, which is why it’s necessary to have the right homeowners insurance coverage in case workers have an accident inside your home.  

Most states require a contractor to carry worker's compensation, property damage and personal liability coverage insurance, so always ask to see a copy of their certificate of insurance. Make a note of the expiration date and put it on your calendar — if your renovations extend past the expiration date of the policies, be sure to ask for an updated certificate. 

Lean on VIU by HUB to fully understand what you’re insured for

Don’t let avoidable situations take away from your addition or remodel excitement. It’s a good idea to discuss how any planned renovations may affect your homeowners insurance to avoid any unpleasant surprises. Our trusted agents will gladly review the valuation clause to make sure you avoid any coverage gaps.  

To clarify and update your insurance policy, review your building contracts and get more information on insurance for home renovations or amending your homeowners coverage, call the VIU by HUB Advisory Team today.