5 renovations that can impact your home insurance

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Home renovations can be a great way to build value in your home and make it your own. However, you can get so busy with renovations and the day-to-day details of life that you may forget to inform your insurance company, which could have serious implications. As many as 64% of homes are underinsured by an average of 27%. Though making coverage changes may increase your insurance rate, being underinsured could mean you are not sufficiently covered if you have to file a claim. Reviewing your home insurance policy regularly and talking with your insurance company can help ensure you have adequate coverage in place at all times.

Renovations that increase home insurance rates

Some home renovations greatly increase the value of your home and the cost of your home insurance, while others do not have much of an effect. You should know what you can expect if you plan to proceed with one of the more popular home renovations.

Building a pool

In certain locations, adding a pool to your home can increase its value and offer an incentive to would-be buyers. However, a pool is considered an “attractive nuisance” and increases your liability risk, which will likely increase your home insurance rates.

A standard homeowners insurance policy usually includes liability coverage, which is designed to cover medical costs for a person injured on your property and legal expenses if you are sued. However, an insurer may recommend that a pool owner opt for higher liability coverage than what is standard. Homeowners might also consider purchasing an umbrella insurance policy, which provides additional liability coverage.

The insurer also may require a locking fence around the pool or a locking cover to go over the water when the pool is not in use. If the pool has a diving board or slide, it will likely be considered a greater potential hazard.

Adding an office for a home business

Working remotely is becoming more common, so adding an office could increase your home’s value for workers and home business owners. However, it could also increase your homeowners insurance rates or require you to purchase an additional insurance policy. Most homeowners policies protect equipment for home-based businesses up to about $2,500. That might not be enough for a business owner who uses specialized machinery or stores large amounts of supplies or inventory.

Additionally, homeowners policies might not cover liability related to the business. You may need to bolster your existing policy or purchase an additional business policy. This is particularly true if your business is the type that creates heavier foot traffic in your home, such as piano lessons or private yoga sessions.

If you do need to bolster your business coverage, you may have a few options, depending on your provider:

  • Endorsement to your existing homeowners policy: This option would increase the existing limit on business property included in your homeowners policy.
  • Businessowners policy: This is a separate policy designed specifically for insuring a business, and it includes an array of coverages.
  • In-home Business Insurance: This type of insurance features the same protection you would get if you were a larger company with smaller policy limits and premiums.

Regardless of the scope of your business, you should let your agent know if you have any business risk in your home, to make sure that you are covered properly.

Expanding your space

Sometimes a home needs to grow to accommodate an expanding family. That can mean adding more livable square footage, such as in a basement or attic. In other instances, a new addition may be in order. Expanding your space with new square footage may increase your home insurance rates if you need to increase your coverage.

You might need more post-renovation insurance even if the added space is not inside your house. Adding a large finished deck could increase the value of your home, for example, and consequently require an insurance reevaluation.

You may need to consider other types of coverage for the newly built areas of your home. A finished basement with new carpet, drywall and insulation may need water backup coverage if the sump pump is located there, for example.

Ultimately, if you build to expand your usable square footage indoors or out, your insurance will need to be altered to account for the value of the new space.

Upgrading your kitchen or bath

According to the 2021 Cost vs. Value Report by Remodeling Magazine, a kitchen or bathroom remodel can provide upwards of 50% in recouped value. Suppose you make quality upgrades, like changing out laminate for granite countertops or having custom cabinets built. In that case, you may need to increase your dwelling coverage on your home insurance, which usually comes at an additional cost. If your home coverage is not enough to rebuild your new kitchen or bath, consider increasing the coverage to be in line with your upgrades.

A claimable occurrence could happen at any time during or after your kitchen or bathroom upgrade. If your existing coverage is not sufficient, you may not be able to rebuild or repair your upgraded features. Your insurance agent can use the company’s valuation tool to determine if coverage changes are needed to keep your home properly insured.

If your contractor upgrades the home’s electrical or plumbing systems during a kitchen or bath renovation, you may qualify for a discount, which could offset any increase in your insurance rate. Your home renovation insurance needs can adjust your premium either way. Not all improvements mean paying more for your coverage. In fact, some changes — like those plumbing or electrical updates — could mean paying less.

Renovations that lower home insurance rates

If you are making changes that make your home safer, like updated electrical or plumbing systems, you could see lower rates after you and your provider evaluate your home renovation insurance needs.

Renovating or replacing your roof

A new roof may not be the most exciting home improvement, but it can save you money when it comes to homeowners insurance. Upgrading old appliances, like the HVAC system, and replacing your roof usually means a reduction in premium because your home is better protected with new materials.

Some homeowners can get even bigger discounts if they live in hurricane-, wind- or hail-prone states and their new roof employs special loss-mitigation measures, such as hurricane straps, waterproofing or the impact-resistant shingles.

While most home policies cover roofs, some insurers use depreciation schedules based on the age of the roof to determine how much protection you get. The newer the roof, the more coverage you are likely to have from insurance.

Do I need to increase my homeowners insurance after renovating?

Whether you need to increase your homeowners insurance after renovating depends on the coverage you already have in place and the value and type of the renovation. When you choose an insurance company, part of your insurance rate is established by your home’s square footage and the cost required to fix or rebuild it.

Insurance companies use valuation tools to determine how much coverage you need for the home structure. If the renovations increase that valuation, you may want to consider increasing your coverage, too. Without increased coverage, should a disastrous event occur, any improvements you have made may not be covered.

Another thing to consider is when significant improvements are made outside of your home, like adding a high-end shed or pool. They may not be covered unless your other structures coverage is sufficient. Be sure to let your insurance company know when you have done any type of work to your home so that it can perform a post-renovation valuation to accurately determine your new coverage needs.

Adding additional home renovation coverage

When completing a home renovation, you should check to see if adding additional coverage is needed. While your current home insurance policy may have sufficient coverage already, you may need to make some changes while under construction:

  • Builders risk insurance: This coverage protects materials you have purchased to be installed, whether it is on your property or en route to your property. If it is damaged or stolen, builders risk insurance should cover the costs of replacement.
  • Vacant home insurance: If you need to live outside of your home while renovations or remodeling is being done, you may want to consider vacant home insurance. This key home improvement insurance protects your home should any damage occur while you are not actively living in it.

What is contractors insurance?

Contractors insurance provides coverage for property damage, injury or damage caused by the contractors while working on your home. When searching for a contractor to complete your home renovation, ask if they are insured and to provide copies of their insurance policy before signing a contract for work. This way, you know they are insured should something happen on your property or to you or your family during construction.

Written by
Kacie Goff
Personal Finance Contributor
Kacie Goff is a personal finance and insurance writer with over seven years of experience covering personal and commercial coverage options. She writes for Bankrate, The Simple Dollar, NextAdvisor, Varo Money, Coverage, Best Credit Cards and more. She's covered a broad range of policy types — including less-talked-about coverages like wrap insurance and E&O — and she specializes in auto, homeowners and life insurance.
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