Updated June 16th, 2003

IIAA's Remodeling Tips Significant Study Findings

The home remodeling business is booming, with more than one in three American homeowners recently remodeling their home, or planning to do so in the next year. But during this fix-up frenzy many homeowners will be exposed to serious financial risk.

One-in-four home remodeling projects increases the value of a home by more than 25 percent, but too few consumers consider increasing their homeowners insurance limits to reflect their home’s increased value, according to a national telephone survey commissioned by the Independent Insurance Agents of America (IIAA). This means millions of homeowners have recently become — or could soon be — seriously underinsured.

Nearly 60 percent of homeowners who recently made major structural changes to their homes —such as bathroom or kitchen remodels, room additions, new decks or patios — have not updated their homeowners policies. And 75 percent of those surveyed who have plans to remodel in the near future indicated they had not thought about updating their policy.

“The investment is considerable, in most cases more costly than a new car. While few people would question the need to adjust their auto insurance if they were to trade up from a compact car to a luxury sedan, many fail to see the importance of safeguarding a significant investment in their home,” said Madelyn Flannagan, IIAA assistant vice president of research and development.

Most insurance companies require homeowners to insure their home to a minimum of 80 percent of its replacement value to be eligible for full coverage. If coverage falls below that level and the homeowner experiences a loss, they will be penalized with a partial settlement — often thousands of dollars less than the actual cost to replace the damaged property. A homeowner with a total loss, an outstanding mortgage and a home equity loan could easily risk bankruptcy in this case, warns Flannagan.

The survey also found that many homeowners are not taking basic steps to protect themselves from losses while work is being done on their homes, regardless of who is actually doing the renovation.

Employing an independent contractor or home remodeling firm.

Approximately 42 percent of homeowners employ a remodeling firm or independent contractor, and four of five said they assume their contractor’s liability insurance will cover them during the renovation. Surprisingly, fewer than one in three remembered to ask for proof of insurance. Even when the contractor volunteered insurance information, nearly two-of-three homeowners have no idea whether their contractor is insured, the survey revealed.

The contractor should provide a certificate of insurance. Each certificate includes dates of coverage and should be specific to the homeowners remodeling project (similar to a building permit). It is recommended the homeowner make a copy the certificate and share it with his/her agent before any work begins. An agent can advise consumers if the contractor’s insurance is adequate, or of any exposures created by the renovation.

Doing the project yourself, or relying on family and friends.

Additionally, 54 percent of home remodel projects are done by the homeowner, family and/or friends. There are often very different insurance needs when the homeowner utilizes family or friend to assist with a project. Homeowners should check with their agent to confirm they have adequate personal liability insurance, particularly if more than two people will be working on the renovation. It may be necessary to obtain a personal liability umbrella policy — these are easy to obtain, relatively inexpensive, and protect a homeowner well beyond the typical homeowners policy liability.

IIAA Remodeling Tips:
What You Need to Know About Insurance When Remodeling

Make an insurance review an essential part of any home remodeling plan. Contact your agent before you begin any work.

Request a copy of the contractor’s certificate of insurance from his/her insurance agent and request 30-days notice of cancellation. Share the certificate with your agent for his/her insight specific to your home to determine if there is any exposure.

Always check with the Better Business Bureau when selecting a contractor and follow up
with references provided by the contractor. Inquire if the contractor is licensed and bonded (not required in all states).

When opening your home to the elements (i.e. tearing down a wall, replacing a chimney)
review your policy for theft and weather damage liability. Typical homeowners insurance may not cover inclement weather damage or theft during a renovation because the homeowner created the vulnerability.

Always establish responsibility for uninstalled appliances, cabinets, carpet and other items in advance; the contractor should have a builder’s risk policy or installation floater to cover these items.

If you plan to leave your home during remodeling, you could be jeopardizing your homeowners insurance if you are gone more than 30 days. Most policies have vacancy clauses that vary from company to company, so be sure to check your policy. You can purchase a vacancy endorsement if needed.

If a friend or family member will be doing the work, ask your insurance agent if you will need builder’s risk insurance. If more than two people will be working on the renovation, obtain a personal liability umbrella policy, which is easy to obtain, relatively inexpensive and protects a homeowner well beyond a typical homeowners policy liability.

Significant Findings from the IIAA’s Home Remodeling Survey

The survey results were obtained via a national telephone poll of 1,324 American homeowners conducted March 1-7, 2000, by Media, Pa.-based International Communications Research for the Independent Insurance Agents of America. All survey respondents identified themselves as “head of household.” The survey has a margin of error of +/-1.1 percent. The key findings include:

One-in-three American homeowners have recently remodeled their home or plans to do so in the next year.

Nearly half of respondents (48 percent) age 18-34 said they recently completed or will do
significant remodeling in the next year.

Nearly 60 percent of homeowners who recently made major structural changes to their homes — such as bath or kitchen remodels, room additions, new decks or patios — have failed to update their homeowners policies.

Almost three-quarters of those who plan to renovate or add-on to their homes in the near future said they have not thought about updating their insurance policies.

One-quarter of home remodeling jobs today increases the value of the home by 25 percent or more.

Nearly one-third of homeowners used self-employed contractors; only 12 percent were selecting professional remodeling firms.

Of the homeowners who will employ someone else to remodel their home, 80 percent believe their contractor’s liability insurance will protect them from losses while the work is being done

Fewer than one-in-three homeowners said they asked for proof of insurance.

Only 40 percent of contractors produced a certificate of insurance, whether requested or voluntarily offered.

Information provided by...Independent Insurance Agents of America, Inc.