Planning a home renovation can involve fun activities, such as designing a new floor plan or picking fixtures and paint colors. Having a heart-to-heart with your home insurance carrier may not be part of your preparations, but it should be.
Many house improvements that boost your home’s value could render your home insurance coverage inadequate and leave you vulnerable to losses. Other upgrades may trigger lower premiums — savings you do not want to miss simply because you did not think about your home insurance during renovation.
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
A pool may make you the most popular house on the block, but it means your home is riskier from an insurance standpoint.
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.
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
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.
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
Nothing can give a house a boost quite like making over a kitchen into a chef’s dream or a master bathroom into a spa sanctuary. But unless you give your home insurance a makeover as well, the renovation may be at risk.
To protect the full value of your home, you will need to update your home insurance after a renovation. To be on the safe side, you should let your insurer know before you make the renovations in case something goes wrong during the process.
For example, say your insurer based your coverage on a kitchen with laminate countertops and generic cabinets. If you spend $40,000 on granite countertops, custom cabinets and top-of-the-line appliances, your existing coverage may not be sufficient to rebuild your remodeled kitchen after a disaster.
Call your insurer about the renovation and provide records and photos to validate what you have done. Your premium may increase because your home is now worth more.
If your contractor upgrades the home’s electrical or plumbing systems during a kitchen or bath renovation, you could qualify for an insurance discount. However, you will need to advise your insurance provider of the changes to the home and ask if you qualify for a discount.
Your home renovation insurance needs can adjust either way. Not all improvements mean paying more for your coverage. In fact, some changes — like those plumbing or electrical updates — can 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.
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?
Even though experts estimate that remodeling projects increase home values by at least 25 percent, many homeowners do not increase their coverage. That essentially means you do not have the proper coverage for your home update.
When you chose your insurance provider, part of your premium was established by your home’s square footage and the cost that would be required to fix or rebuild it. This means that when you increase the value of your home, you also need to increase your coverage, which may increase the cost of your policy. Without increased coverage, should a disastrous event occur, any improvements you have made will not be covered.
Another thing you need to consider is that if you make significant improvements outside of your home, meaning you add structures like a high-end shed or pool, they will not be covered unless your other structures coverage is sufficient.
Be sure to let your insurance provider know when you have done any type of work to your home, so that they can perform a post-renovation inspection to accurately determine your new coverage needs.
Adding additional home renovation coverage
There’s another piece to consider. Do you need homeowners insurance during remodeling?
Short answer: Yes.
During renovations, you need to protect items in your home that are not covered with the typical homeowners insurance policy, so speak to your insurance provider about purchasing the following home renovation insurance:
Construction Material Coverage
This coverage protects any material you have purchased, whether it is on your property or en route to your property. If it is damaged or stolen, construction material coverage will cover the costs of replacement.
Should your home’s foundation be damaged during construction, foundation collapse will cover the cost of its repair.
Vacant home insurance
If you need to live outside of your home while renovations or remodeling is being done, you should purchase vacant home insurance. This key home improvement insurance will protect your home should any damage occur to it and you do not notice it until you are back home.
Do not forget to make copies of your contractor’s insurance
Contractors normally have insurance to protect them and you while they are on the job. To work on your home, they will need liability, property and worker’s compensation. Get copies of each before signing any type of agreement with them.