By Olya Yepremian, Momentous Insurance Brokerage
Most homeowners may not realize the impact a renovation project has on their homeowner’s policy and that failure to take appropriate action could result in an uncovered claim. In simple terms, if your home is insured for $10 million and you add $2 million in improvements, you now need insurance for a $12 million home. If there is a fire and you fail to report the project to the insurance company, your additional investment is not insured, and you will incur out-of-pocket reconstruction costs. Additionally, you may be exposed to uncovered liability risks. Whether you plan to expand your great room, add a second floor or install an infinity pool and spa, a standard homeowners policy will not provide adequate protection. Depending on the project’s scope, a separate policy—either a course of renovation (COR) or course of construction (COC)—is crucial for properly protecting your assets.
A COR is for any residence that undergoes replacement of existing materials inside or outside the home. This includes improvements to an existing structure; a COC, however, is for new structures built from the ground up. A COR can cover diverse improvements, from upgrading kitchen countertops from simple granite to Vermont white quartzite, to installing a car elevator to accommodate an antique car collection. During renovations, a property becomes more vulnerable to loss and a typical homeowners policy imposes restrictions for this type of activity. If you are not living in your home during renovations, your vacant property becomes a target for trespassing, theft, vandalism, fire and many liability issues. The most frequent causes of construction fires are subcontractor error, improper use and storage of combustible material and arson. The most frequent liability losses include injury from a slip and fall, and possibly death. Project sites are most vulnerable on the weekends, where theft of building materials, appliances and tools can happen in an instant. Preparing budgets, hiring a general contractor and interior designer and moving fine art and personal belongings into storage are just some of the moving parts involved before renovation begins. Notifying the insurance company may fall low on the list of priorities but it is one of the most important risk management steps you can take.
Essential insurance items to consider for a remodeling project:
• Provide the scope of work and budget to your insurance professional before the renovation begins. You may need to adjust policy limits to account for upgraded materials, fixtures, etc., or purchase a separate COC or COR policy.
• If personal belongings are placed in storage, extend your existing policy to cover the storage facility. Look for a reputable facility with climate control and a high-tech alarm system.
• Request a certificate of insurance from your licensed general contractor that shows proof of his or her general liability and workers’ compensation insurance.
• Discuss construction site safety protocols with your broker and GC, such as installing temporary alarms, fire extinguishers and fencing.
Insurance companies vary in the way they insure renovation projects. Many high net worth companies cover minor renovation work for an additional surcharge to the current policy premium. Others require you to convert a homeowner’s policy to a COC or COR based on whether the homeowner is living on the property or whether the value of the project exceeds a percentage of the home’s replacement cost amount. If this occurs, your premium will be adjusted to reflect the increase in risk and limits. The good news is your insurance advisor can help you implement several safety measures that can minimize the insurance costs.
Our homes are among our most cherished and valuable assets. The last thing you want to deal with after a loss is discovering that your insurance carrier excludes or declines to pay the claim because of a failure to disclose material information.
Momentous Insurance Brokerage
5990 Sepulveda Boulevard #550
Van Nuys, CA 91411
The above article was written by Olya Yepremian with Momentous Insurance Brokerage, specializing in high and ultra high net worth clientele, re-published here with permission of the author.
Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County, serving individual, investor and small business interests in real estate. Active with the Newport Beach Association of REALTORS® and Costa Mesa Chamber of Commerce, Devin R. Lucas Real Estate is an independent real estate brokerage and law practice located in Newport Beach, California.
2901 West Coast Highway Suite 200
Newport Beach | California | 92663-4023