Guide For Your Contractor's Coverage
Whether you're embarking on something as small as replacing cabinets or as large as building an addition, there's a good chance you're putting your most valuable asset in the hands of someone you don't know.
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Request status as an "additional insured"
When purchasing insurance, contractors have the option to add their clients as "additional insured" parties. Individuals with additional insured status can receive benefits from the insurance company in the event that the contractor — or any subcontractors — causes damages.
Specifically, homeowners should request both "ongoing" and "completed" coverage as an additional insured. Ongoing coverage is less expensive and protects you from anything that goes wrong while the contractor is in the house and doing work. Completed coverage is more expensive but more valuable: It protects against anything that goes wrong after the contractor finishes his work.
If, for example, a newly installed shower leaks and causes water damage in your house, completed additional insured coverage would compensate you for the cost of repairs.
Bottom line: Adding yourself as an additional insured to a contractor's policy will increase the cost of his premiums (and therefore the prices he charges), but is worthwhile for the potential this coverage has to save you money down the road.
Understand the limits of your contractor's insurance
Contractors are responsible for any damage they cause while working on your home, but insurance benefits work according to strict rules. Take the leaky shower example. Imagine you collected benefits from the insurance company to repair the water damage, but several months later, you realize that the leak triggered mold growth.
Because you already submitted a claim for the water incident, the insurance company will not offer additional compensation to eliminate the mold.
Bottom line: Before submitting any claims to an insurance company, be sure you understand the full scope of the damage done so you can receive adequate compensation.
Update your homeowner's insurance
While your homeowner's policy won't be able to cover damage caused by a contractor's work, it can be updated to protect you against certain risks. One popular endorsement (that is, optional add-on) to a homeowner's policy is builder's risk coverage, which protects your investment in any building supplies you purchase. If, for example, you bought materials for a major project and stored them in a pod on your driveway, builder's risk would cover you in the event that anyone stole those materials.
And a renovation endorsement can protect you against a variety of risks that might occur during a home renovation.
Bottom line: Even though general homeowner's insurance policies won't cover risks contractors pose, you can protect your direct investment in building supplies with endorsements to your homeowner's policy.
You should remember that even relatively small projects can lead to major damage if they're done poorly. While vetting candidates may be your top concern, the best way to protect your investment in your home is to verify a contractor's insurance coverage, check his or her references and document any incidents fully.
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