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Homeowners often mistakenly think their property insurance will cover loss during remodeling — or may assume that their contractor’s general liability policy may provide all of the needed coverage. Some property policies even have exclusions for coverage to the existing structure if renovations are taking place at the time of the loss.
Work site injuries. Damage. Vandalism. Fire. Theft. The list goes on. Many families look forward to remodeling their home, but too often the renovation process can become riskier than expected. Some of the largest losses that insurers experience occur to homes under renovation. The following is a quick list of some of the factors that arise during renovation projects that increase the risk of loss.
- Increased foot traffic from the workers leads to a greater risk of injury on the property.
- Luxury homes may have valuable objects inside that may be stolen.
- Workers use tools to renovate the house that can cause damage. Some of the tools used involve flammable material, such as blowtorches, paint thinner, floor sanders, etc.
- Unoccupied luxury homes under renovation are a target for vandalism, unauthorized use, and theft of building materials.
- Contractors make mistakes too. If they cause damage to the home, their policy should cover the associated costs. However, there are uncontrollable factors that need to be considered, such as a canceled policy due to a missed bill.
Properly insuring a home while it is under renovation is a critical component of the planning process, and it is not one that should be overlooked.
There are two common ways to insure a residence under construction or major renovation: Homeowners Insurance and Builder’s Risk Policies. Each is based on specific criteria, and we strongly encourage owners and financial planners to consult with an insurance advisor who can determine the policy options to best manage potential risks.
Insuring projects under a Homeowners policy is often the preferred approach to managing the risks because it affords both property and liability coverage to the owner. It is critical for owners to maintain sufficient liability protection during the entire span of any renovation project. In most cases, contractors can be added as an “Additional Interest” to the policy, protecting their financial interests throughout the project while excluding them from liability coverage. However, a contractor should always maintain commercial liability and workers’ compensation insurance.
Builders Risk Insurance
Most owners and contractors involved in residential new construction projects are familiar with builders risk coverage to insure against the risk of property loss. However, builders risk insurance can provide coverage beyond new construction projects. Builders risk also provides much-needed coverage for remodeling or additions to residential structures like custom homes. Owners or contractors working on a remodeling project may not be aware that builders risk coverage is a valuable purchase to protect the structure in the event of a loss. Builders risk is designed to protect property owners, real estate developers, and general contractors who have an insurable interest in a construction project. The policies extend well beyond that of the contractor’s general liability policy – and the homeowners policy. Builders risk insures materials, equipment and fixtures being permanently installed, whether the project is new construction or remodeling.
Please contact us for additional guidance if you are planning to renovate or begin construction on a property.
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