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Should you get liability and property insurance for your renovation job?

Construction work can be dangerous, and your home, when it's under renovation, is a work site like any other. A renovation involves risk to the owner, the contractor, the workers on site and any strangers who might happen by. If you've gone to a bank to finance a renovation, you'll find it wants to limit its risk as well, and may insist on extra insurance coverage. So, to protect yourself during a renovation, you'd better make sure you have insurance.

I had an email from Ken in Toronto, who asked whether the liability component of his home insurance policy would cover his renovation, or if his contractor is supposed to have his own insurance. I've said it a thousand times: Make sure your contractor has full liability and Worker's Compensation insurance. Ask for the policy number. Call to check it's legitimate and still valid.

But, that insurance still may not be enough. And don't automatically count on your homeowner's insurance to cover construction.

Your homeowner's policy might cover renovations. Check with your insurance agent -- you might need an extension of coverage to include the planned renovation. Tell your agent what kind of work is going to be done and who's going to do it -- you or a contractor.

So here's the question the insurer might ask: Is your contractor licensed or unlicensed? If you know anything about me, you know how I feel about that: Go licensed all the way. Fortunately, some insurers feel the same way, and depending on where you live, they may insist on licensed contractors. Insurers like to limit their risk, and hiring a licensed contractor does that.

There's another bonus: If you hire a licensed contractor, chances are the person's work will satisfy the building code requirements. An unlicensed contractor increases the risk that things won't be done according to code, and that might become the homeowner's responsibility to fix. What's more, licensed contractors are also more likely to carry workers' compensation.

I've seen cases where an uninsured homeowner became responsible for personal and property damage that was caused by their renovation. Let's say your contractor is doing an excavation to repair your foundation. And maybe the vibration from his machinery damages your neighbour's house, either superficially by cracking his plaster, or seriously by undermining his footings so his support is compromised. If you aren't insured, the cost of that repair is your responsibility. It could bankrupt you.

Liability insurance should cover your family, any workers or other people that might find their way onto your property while construction is under way. It should also extend to public property, such as a water main, that might be nearby. And it should cover your neighbours' houses or other property.

Insurance coverage looks after both public liability and property damage, and you must make sure you've got enough. How much is that? Liability is commonly in the $1-million range for one occurrence. Think that seems like a lot? The cost of a worker's injury, therapy, lost wages, and pain and suffering can add up fast. Your policy should offer protection equal to the cost of construction -- that's all the work and material contracted for by both the owner and contractor.

Make sure the policy you get includes all the contractors involved and includes the possible theft of building materials and equipment. Believe me, this happens. Some policies only cover the theft of things that are attached to the house, then literally ripped off. But a lot of theft is of tools and materials that are lying around the job site that somehow "walk away."

A homeowner has to be protected. Make sure your contractor has liability and workers' compensation insurance before any work starts.

Get any additional coverage you need. It's worth every penny.

Mike Holmes is the host of Holmes on Homes on HGTV.

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