5 renovations that can impact your home insurance
Designing a new floor plan or selecting fixtures and paint colors can be enjoyable aspects of home renovation planning. A conversation with your home insurance carrier may not be on your list of preparations, but it should be.
Many home improvements that increase the value of your home may render your home insurance coverage insufficient, leaving you vulnerable to losses. Other improvements may result in lower premiums — savings you don't want to pass up simply because you didn't consider your home insurance during the renovation process.
Renovations that increase home insurance rates
Some home improvements significantly increase the value of your home and the cost of your home insurance, while others have little effect. If you intend to proceed with one of the more popular home renovations, you should be aware of what to expect.
Building a pool
A pool may make your house the most popular on the block, but it also makes it riskier from an insurance standpoint.
A standard homeowners insurance policy will typically include liability coverage, which is designed to cover medical costs for someone injured on your property as well as legal fees if you are sued. However, an insurer may advise a pool owner to purchase more liability coverage than is required.
When the pool is not in use, the insurer may also require a locking fence around it or a locking cover over the water. If the pool has a diving board or a slide, it is more likely to be considered a potential hazard.
Adding an office for a home business
Most homeowners policies cover equipment for home-based businesses up to $2,500 in value. That may not be sufficient for a business owner who employs specialized machinery or stores large quantities of supplies or inventory. Furthermore, homeowners policies may not cover business-related liability. You may need to supplement your current policy or purchase a new business policy. This is especially true if your business, such as piano lessons or private yoga sessions, generates a lot of foot traffic in your home.
If you do need to supplement your business coverage, depending on your provider, you may have a few options:
- Endorsement to your existing homeowners policy: This option would raise the existing limit on business property in your homeowners policy.
- Businessowners policy: This is a separate policy that is designed specifically for insuring a business and includes a variety of coverages.
- In-home Business Insurance: This type of insurance provides the same protection as a larger company, but with lower policy limits and premiums.
Regardless of the size of your business, you should notify your agent if you have any business risks in your home to ensure that you are adequately covered.
Expanding your space
A house may need to expand to accommodate a growing family. This may imply creating more livable space, such as in a basement or attic. In other cases, a new addition may be necessary.
Even if the additional space is not inside your home, you may require additional post-renovation insurance. Adding a large finished deck, for example, may raise the value of your home and necessitate a reevaluation of your insurance.
For newly constructed areas of your home, you may need to consider other types of coverage. A finished basement with new carpet, drywall, and insulation, for example, may require water backup coverage if the sump pump is located there.
Finally, if you build to increase your usable square footage indoors or outdoors, your insurance will need to be adjusted to reflect the value of the new space.
Upgrading your kitchen or bath
Nothing beats transforming a kitchen into a chef's dream or a master bathroom into a spa sanctuary to add value to a home. However, unless you also update your home insurance, the renovation may be at risk.
After a renovation, you will need to update your home insurance to protect the full value of your home. To be safe, notify your insurer before beginning the renovations in case something goes wrong during the process.
Assume your insurer determined your coverage based on a kitchen with laminate countertops and generic cabinets. If you spend $40,000 on granite countertops, custom cabinets, and high-end appliances, your current coverage may not be enough to rebuild your remodeled kitchen in the event of a disaster.
Inform your insurer about the renovation and provide records and photos to back up your claims. Your premium may rise as the value of your home rises.
You may be eligible for an insurance discount if your contractor upgrades the home's electrical or plumbing systems during a kitchen or bath renovation. However, you must notify your insurance provider of the changes to your home and inquire whether you are eligible for a discount.
Your home renovation insurance requirements may change in either direction. Not all enhancements necessitate an increase in your insurance premium. In fact, some changes, such as plumbing or electrical upgrades, can result in lower payments.
Renovations that lower home insurance rates
If you are making changes to your home that will make it safer, such as updated electrical or plumbing systems, you may be able to get 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 project, but it can help you save money on homeowners insurance.
Some homeowners may qualify for even larger discounts if they live in a hurricane-, wind-, or hail-prone state and their new roof incorporates special loss-mitigation features such as hurricane straps, waterproofing, or impact resistant shingles.
While most homeowners' insurance policies cover roofs, some insurers use depreciation schedules based on the age of the roof to determine how much coverage you receive. The more recent the roof, the more insurance coverage you are likely to have.
Do I need to increase my homeowners insurance after renovating?
Despite the fact that experts estimate that remodeling projects increase home values by at least 25%, many homeowners do not increase their insurance coverage. That essentially means you do not have adequate coverage for your home improvement.
When you chose your insurance company, a portion of your premium was determined by the square footage of your home and the cost of repairing or rebuilding it. This means that as the value of your home increases, so must your coverage, which may raise the cost of your policy. If a catastrophic event occurs, any improvements you have made will not be covered unless you increase your coverage.
Another thing to consider is that if you make significant improvements outside of your home, such as adding a high-end shed or pool, they will not be covered unless your other structures coverage is sufficient.
If you have done any type of work to your home, notify your insurance provider so that they can perform a post-renovation inspection to accurately determine your new coverage needs.
Adding additional home renovation coverage
There's one more thing to think about. Do you require homeowners insurance while remodeling?
The short answer is yes.
During renovations, you'll need to protect items in your home that aren't covered by your standard homeowners insurance policy, so talk to your insurance provider about getting the following home renovation insurance:
Construction Material Coverage
This coverage protects any purchased material, whether it is on your property or on its way to your property. Construction material coverage will cover the costs of replacement if it is damaged or stolen.
Foundation Collapse
If your home's foundation is damaged during construction, foundation collapse will pay for the repairs.
Vacant home insurance
If you need to live somewhere else while your house is being renovated or remodeled, you should get vacant home insurance. This important home improvement insurance will protect your home if it sustains damage and you do not notice it until you return home.
Do not forget to make copies of your contractor’s insurance
Contractors typically carry insurance to protect themselves and you while on the job. They will require liability, property, and worker's compensation to work on your home. Make a copy of each before entering into any type of agreement with them.