It's finally time to renovate your kitchen. After years of saving money and drawing up plans, the time has come to knock a hole in the wall, rip out the old appliances, and build your dream kitchen. Before you call a contractor, consider how your new construction will affect your insurance needs, both during and after the renovations.

Most homeowners policies require you insure your home for at least 80 percent of its replacement value. Twenty-five percent of remodeling efforts result in more than a 25 percent increase in home value, according to the Independent Insurance Agents of America (IIAA). Chances are you'll need to increase the amount of your homeowners policy to reflect the impact of renovations on your home’s value.

The National Association of Insurance Commissioners (NAIC) recommends reviewing your home insurance policy, whenever significant work is done on your home. “For instance, the addition of a room, new insulation and yearly inflation all increase the replacement cost of your home,” the NAIC points out.

“Therefore, it is important to review your homeowners policy to determine whether you are carrying enough insurance to be fully covered,” advises New York Insurance Commissioner Gregory Serio. “The addition of a room, or other substantial home improvements, will increase the replacement cost of your home, and you should adjust your coverage accordingly.”

Building supplies

Your homeowners insurance covers the building materials you’ll need for your renovation. That's a reason to raise your coverage limits before you begin any work on your house. If a fire struck and destroyed both your home and the building materials, you might not be covered for the full extent of the damages unless you've updated your coverage limits.

Who's doing the work?

It's not just your home's higher value that should figure into your insurance calculations. Whether you do the job yourself, or hire a contractor, also affects your insurance needs.

If you hire an outside person or firm, you must ask whether the contractor has adequate insurance coverage before the work begins. The contractor should provide proof of insurance, in the form of a "certificate of coverage," for workers compensation and contractor's liability insurance.

Workers compensation insurance covers injuries to the contractor and his employees while they're doing the work. If a worker was injured in your home and the contractor did not carry workers compensation, you could be sued.  Your homeowners coverage would not pick up the bill. Workers compensation is required for employers in every state but Texas.

Contractor's liability insurance covers the contractor for damage to your property while it's under construction. For instance, if there's a big hole in an outside wall and the contractor fails to cover it properly during a rainstorm, water could leak in and cause major damage. Though homeowners insurance will cover these damages, your insurer will expect the contractor's insurance company to pick up the tab if you make such a claim. A reputable contractor will have this coverage and should provide proof of insurance.

For the do-it-yourself home-repair guru, your insurance requirements depend on who's helping you and whether you are paying them for the help. A friend or family member who's injured while lending a hand can have his medical bills covered by your homeowners policy.

Hiring a subcontractor or paying someone to help you out makes you an employer. That means you must purchase workers compensation insurance to cover your liability in case of an injury.