During a renovation, what happens to your home insurance?
I'm renovating my apartment, and will be living in a short-term rental while the work is done. Do I need to update my apartment insurance policy during the process? And will it cover any damage or injuries from the renovation process, or should that be the responsibility of my architect and contractor's insurance?
You'll almost certainly need to update your coverage in some way or another, but the details vary depending on the situation, and you should check with your insurance broker before moving forward, say our experts.
"We suggest you speak to your insurance broker in terms of coverage," says Thomas Usztoke, vice president of Douglas Elliman Property Management. Since most alteration agreements—a contract between you and your building confirming that you'll do your renovations up to code, and without damage to the building—are between the apartment owner and the building, and not directly with the contractor, "you’ll want to ensure that your homeowners policy protects you in the event of a contractor-caused issue; whether it’s damage or injury." (This even includes injury to one of the contractor's employees, which should be covered by their worker's compensation policy—more on that below.)
While a typical policy might cover you for a short renovation during which you remain in your apartment, for the kind of project you describe, you'll need to temporarily replace your current coverage with an option that covers renovation-related risks, concurs Jeff Schneider, president of Gotham Brokerage (FYI, a Brick sponsor).
"For long-term renovations, especially if you move out, your policy may be voided," he explains, as a standard policy doesn't cover you for the extra risks involved in a reno. "You may need a policy covering the course of renovations or a 'builders risk' policy." The builders risk policy covers damage to materials involved in your renovation, as well as damage that can arise from things like a fire or storm.
The cost of this can vary widely, Schneider notes. "It can be the same as your current policy or twice as much." Additionally, you may also want to consider temporary renters insurance at your short-term home.
And then there's the matter of your contractor's insurance, another key factor in this picture. "Your own policy does not substitute for the general contractor's workers comp or general liability insurance," Schneider says.
Your contractor should have a general liability policy that will cover any potential property damage they might cause, explains Bolster founder and CEO Fraser Patterson. (Bolster is a Brick sponsor.) But do be sure that your contractor is using an appropriate policy geared toward contractors and offering sufficient coverage, says Patterson. As a rule of thumb, an experienced NYC contractor should typically be charged around three percent of the cost of your project in order for the coverage to be appropriately covered.
To be sure everything is as it should be, Usztoke recommends having your insurance broker look over your contractor agreement and insurance policies to ensure that there is "proper language in place covering you, the building, and the managing agent." Indeed, this is a situation where you'll quite literally be reading the fine print. (Your insurance broker should be more than willing to perform this task.)
"It is not enough to accept proof of insurance in the form of a certificate," Usztoke explains. "The coverage details are in the fine print of the policy, which may decline coverage for third parties even if stated on a certificate. Be very careful to ensure maximum coverage."
And when all is said and done, Patterson notes, you'll likely want to update your original homeowner's policy to reflect the new value that's been added to your apartment.
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