Sneaky ways a home remodel can torpedo your insurance

Like many homeowners, you may believe that a home remodel pays for itself – and then some – by boosting your home's market value or increasing its curb appeal.

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But a major renovation can open the door to financial trouble if you overlook a few important details related to insurance.   

Before starting any renovation project, secure your finances by asking yourself three questions.

1. Does my contractor have the proper insurance?

Make sure your contractor has the following types of insurance:

• General liability. Covers all damage to your property and any bodily injuries that occur as a result of the contractor's work on your home.
• Worker's compensation. Covers injuries to the contractor's workers, such as "if one of their workers slips and falls, or has some medical problems as a result of working on your property," says Jim Gontjes, a spokesperson for Foremost Insurance Company.

What happens if a contractor does not have these types of coverage? You could be required to pick up the costs under your own home insurance policy.

It's not good enough to take the contractor's word on this. Ask for insurance certificates. Check with the contractor's insurance company to verify that the policy is still in force, says Mark Ginther, assistant vice president for underwriting policy at USAA.

2. Will I lose insurance coverage if I temporarily vacate my home?

A large-scale remodel may require you to leave your home for several days or weeks while the work is completed. If you're gone for longer than a month, your insurance company could consider the home to be "vacant," negating your standard homeowner policy coverage, Gontjes says.

Even if a contractor is on the property site during the day, your insurer may reject a claim if no one is living in the home, he says. Some insurance companies consider an unoccupied house to be vacant after 30 days, while other insurers use a timeframe of 60 days.

Check with your agent to make sure you're covered before leaving the property for an extended period, Gontjes says. If necessary, protect your home by buying a vacant home insurance policy. This type of coverage usually costs more than a standard policy because vacant homes represent more risk.

"The property doesn't usually have someone looking after it for an extended period of time, especially at night," he says.

Gontjes says the cost of a vacant home policy depends on the state you live in and the options you choose, but premiums could be 50 percent or even 100 percent higher than for a standard home insurance policy.

Fortunately, you probably won't have to pay a higher premium for long.

"The average vacant policy is on the books for only six months," Gontjes says.

3. Is my insurance coverage too low to protect my renovations?

Major remodels, such as finishing a basement or upgrading a kitchen, can add thousands of dollars in value to your home. Update your home insurance policy to make sure these improvements are covered, Ginther says.

Even if you don't think a renovation will increase the value of your home, you'll probably still need more coverage, he says. Insurance coverage levels are based on the amount of money you would need to rebuild your home and replace the contents, not the home's overall market value.

There is a silver lining to the increased insurance costs associated with a renovation, however.

"After completing a renovation, you might qualify for discounts on insurance based on updated heating, electrical or plumbing systems," Ginther says.

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