ABOUT REAL ESTATE: Homeowners should keep insurer informed of remodeling work | property

Owners who fail to make their insurance company aware of past or planned remodeling can find themselves without adequate insurance coverage if a claim later needs to be made.

DEAR DAVE: We did a fairly small ($6,000) renovation of our home two years ago. We are now planning a larger job which will involve a lot of building work including the addition of two new bedrooms and bathrooms. Do we have to report this information to our insurance company?

REPLY: You are not required to report any past home improvement projects you have already completed – nor are you required to notify the insurer of any plans you have made for a future remodeling or expansion project – unless the policy specifically requires such notification.

From a financial perspective, however, there are several reasons why it’s best to contact your insurance company to let them know about the work you’ve done previously and the bigger work you’re about to begin. If you don’t, you could be woefully underinsured if the home is damaged by fire or natural disaster, as your current coverage is based primarily on the size and condition of the property before you completed your first remodel two years ago.

To illustrate, let’s say you received $200,000 of coverage a few years ago, but the remodel you previously completed and the work you are now planning would add an additional $75,000 to the cost add to rebuild the house when it is destroyed. The insurer would likely be required to pay a maximum of $200,000, less a deductible included in the policy: you would then have to pay the rest of the rebuilding costs out of your own pocket.

Also note that there is a chance that the contractor or a subcontractor will be injured while working on the upcoming job. Although the general contractor can promise that all of their subcontractors are insured under their own policy, there is no guarantee that their policy will be up to date. If it’s expired or has strict exclusions, you could be held liable if someone gets hurt and files a lawsuit. To protect yourself, you may be able to arrange inexpensive, short-term coverage for all workers until the job is complete.

There is one other important point to keep in mind. If you want to use common building materials and other items in your upcoming remodel, the increase in your annual homeowner’s premium won’t be very large. However, if the work involves high-end products, such as For example, hand-carved ceiling moldings or expensive lighting and plumbing fixtures, you must notify your insurer of these high-value upgrades to ensure your coverage is sufficient to replace such items with comparable material in the event of a disaster. Otherwise, the insurer may only pay for cheaper fixtures to replace the destroyed ones, and pay little or nothing for the fancy moldings on the ceilings of your new rooms.

DEAR DAVE: Could you please explain the difference between a “half bath”, a “three quarter bath” and a “full bath”?

REPLY: For sure. A half-bath is a bathroom that has only a toilet and sink. A three-quarter bath has a toilet, sink, and shower. A full bath has all three, and also a tub.

DEAR DAVE: We are interested in forming the kind of low cost housing trust you wrote about recently so that our heirs do not have to go through the long and costly probate process to inherit our home after we die. Are houses and other real estate the only types of property that can be placed in a trust, or can other items (like my great-grandmother’s antique chandelier and my husband’s coin collection) be placed in the trust and thus also avoid probate proceedings?

REPLY: You can put virtually anything you want into a newly formed trust. Most people automatically trust their home because it is their greatest asset. Because a trust is a private document, the home and all other items in the trust can quickly pass to the heirs, legally bypassing the probate court. It is not uncommon for the assets of a trust to be completely distributed to the heirs within a few months. Conversely, items left to heirs by a will rather than a trust must go through a probate process, which can easily take a year or even more than two – plus tens of thousands of dollars in attorney fees and associated court costs.

Our Straight Talk About Living Trusts booklet explains how even low- and middle-income homeowners can now reap the same benefits that creating an inexpensive trust once offered only the wealthiest of families. For a copy, mail $4 and a self-addressed, stamped envelope to D. Myers/Trust, PO Box 4405, Culver City, CA 90231-4405. Net proceeds are donated to the American Red Cross. ©2022 Cowles Syndicate Inc. All rights reserved

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