Home owners are leaving themselves open to financial risk when they don't obtain adequate insurance coverage during and after home improvement work.

You virtually always need more insurance coverage when you perform home improvements that increase the value of your home, allow professionals to work in your home or decide to do it yourself -- with the help of family and friends, according to the Washington, D.C. -based Independent Insurance Agents of America.

Protecting value

Unfortunately, 60 percent of home owners who recently completed major structural changes to their homes did so without updating homeowners policies to cover the increase in value. Another 75 percent of those surveyed, who have plans to remodel soon, have not considered the increased insurance cost impact the work could have.

And 25 percent of all home improvements increase the value of a home by more than 25 percent, the agents' group found after a March 1-7 telephone survey of 1,324 home owners. The findings have a margin of error of minus or plus 1.1 percent.

Insurers warn should a loss occur you may not be adequately covered.

"Basically, any kind of improvement that will increase the value of your home, or even a shed or detached garage. If it's going to add more than 5 percent to the value of your home you should report it to your insurer. It could make a difference in the amount of money you'd be able to collect if you have loss," said Deb Dehne, a personal property underwriting manager for Fairfield, Ohio-based Ohio Casualty Group.

Such coverage should be "full replacement value coverage." Full replacement value coverage will provide enough benefits to rebuild your home at today's costs.

Protecting your home

The independent agents' study also found that 33 percent of the home owners used self-employed contractors, while only 12 percent selected professionals. Fewer than 33 percent said they asked for proof of insurance and only 40 percent of the contractors offered proof of insurance, whether they were asked or not.

Professional workers who come into your home should be licensed and have their own accident and disability coverage as well as liability insurance (often called errors and omission coverage) to protect you and your property from harm.

Professional labor includes work performed under a written contract that is signed by both the worker and the homeowner. If the contractor hires others to work with them, the contractor generally must provide his or her workers with workers compensation coverage. Injured workers may sue you if the contractor does not have proper coverage.

Casual laborers are usually part time or occasional workers who handle minor repairs, painting, or odd jobs including lawn mowing, leaf raking, clean up duties and the like.

The liability portion of your homeowner's policy will cover a casual worker's damage or injury in an accident, but only up to the insured amount. If someone suffers a permanent injury from a fall, legal fees could begin to swallow up the basics.

Exposing yourself

"Find out if your policy requires a (temporary) rider in consideration that your home is now a construction site," says Ken Willis, president of the League of California Homeowners.

The independent agents also said home owners, family and their friends complete 54 percent of home remodel projects, leaving the home owner open to a liability suit the policy may not cover.

Inquire about a personal liability umbrella policy that protects you beyond the scope of your existing policy's liability coverage.

Check with your insurance agent to confirm that you have adequate personal liability insurance, particularly if more than two non-professionals will be working on the renovation, said Madelyn Flannagan, research and development assistant vice president with the independent agents' group.