According to a report by USA Today, the number of homeowners who spend more than $25,000 on home upgrades and renovations has increased to 51% since 2023, while more than one-third of such renovations exceeded their expected budget.
It’s undeniable that home renovations cost quite a bit, but you also can’t deny that they add to your home’s overall value. But what does that mean for your home insurance?
This article explores how renovations affect your existing home insurance policy and what are the essential policy considerations for such projects.
Renovations and Homeowners Insurance Coverage
Homeowners insurance won’t directly cover your renovation costs. However, certain circumstances may require adjustments in your existing insurance terms after a renovation.
While small work like a fresh coat of paint or installing a built-in closet may not impact your existing policy, major projects like a full bathroom remodel or adding an extra room will require policy changes.
The Impact of Home Renovations on Home Insurance
When you first get your home insurance, the listed coverage is calculated based on the home’s estimated rebuild value.
For example, let’s say a home’s listed coverage is $350,000. The owner makes kitchen upgrades by installing granite countertops, modular cabinets, smart appliances, etc. After renovation, the home’s build value has increased to $410,000. If this house faces any calamities, the $350,000 cover will not cover the restoration costs—this is how renovations can affect your existing policy.
How Will Renovations Affect My Home Insurance?
- Coverage Limits and Adjustments
As you improve your home, its value typically increases as large remodels significantly affect its characteristics and change its estimated value. After a renovation, you’ll have to update your homeowner’s insurance so the policy adequately covers and protects your renovations.
- Liability Considerations
Renovations pose additional liability risks. Suppose you’re adding an extra room to your home that requires heavy construction equipment; this increases the need for safety measures and coverage, so the insurance may require additional liability endorsements to ensure the house is fully protected.
Another thing to note is that many insurance companies don’t cover specific common issues. Home insurance sometimes, if not rarely, covers circumstances like mold, termite, or water damage; prevention over cure is a better approach for such renovations.
For example, to prevent budding mold or water-logged walls, you can install HDPE plastic sheeting outside your house to act as a moisture barrier. That way, you won’t have to bear heavy mold removal and remediation costs.
How To Get Your Home Renovations Insured?
Renovations to an existing home require insurance needs that are different from those of new builds. The approach changes, risks vary, and the presence of an existing structure creates additional insurance considerations.
So, here’s how you can ensure your renovation projects are protected.
The Insurance Process
Step 1: Before starting home renovations, contact your insurance provider and discuss the details of your renovations with them. This is when you’ll purchase additional coverage for your upgrades.
Step 2: Inform your provider about all the changes made during renovations. If you need more time to complete your project, you may have to discuss extending your temporary coverage and add-ons.
Step 3: After finishing the project, review the insurance policy again and update it to reflect the home’s increased value with details of the new facilities, features, or structure.
Here are five scenarios you should consider when contacting your insurance company:
1. Minor Home Improvements
Your current homeowner’s insurance policy may adequately cover minor projects, repairs, and simple upgrades. However, it’s always good practice to inform the insurance company when working on your home because specific policies mandate that you notify them about even minor renovations.
2. Dwelling-Under-Construction
Many insurance companies offer dwelling-under-construction add-ons that provide additional coverage for renovations. You can include this endorsement to your existing policy, and it will cover risks like theft or weather damage during the remodeling process. Discuss your options with your insurance provider based on what you’re renovating.
3. Vacant Home Insurance
If extensive renovations are necessary, you may have to live somewhere else. However, standard home insurance might not cover accidents or damage while the property is unoccupied. You can get an unoccupied or vacant home insurance add-on or a separate policy to ensure you’re covered while away.
4. Major Home Renovations
As mentioned, most insurance policies don’t cover significant projects like bathroom or kitchen remodeling, room or square footage additions, or structural changes. Considering these renovations are significantly pricey, you shouldn’t leave it uninsured.
Adding liability endorsements can increase your coverage limits. If you have a lot of construction materials, consider getting builder’s risk insurance to protect them against fire, theft, or water damage.
5. Special Insurance Considerations for DIY Projects
While DIYing is a pocket-friendly option, it can also pose an increased risk, primarily during significant systemic or structural changes. Plus, standard policies don’t often cover DIY-related damages. So, you must consult your insurance provider about your coverage or add-ons to protect your home.
Renovations That Change Home Insurance Rates
While some renovations add to the value of your home, they also drive up home insurance rates in the form of higher premiums. On the other hand, upgrades that increase the safety of your home might decrease your coverage rates.
You may experience higher home insurance rates for the following renovations:
- Adding A Swimming Pool or Sauna: Such additions are seen as “attractive nuisances” that significantly increase the risk liability and your insurance premium.
- Upgrading Bath or Kitchen: By making quality upgrades like durable countertop laminates or built-in cabinets, your insurance provider will use the home evaluation tool to determine the coverage changes to ensure sufficient property replacement value.
- Extending Square Footage: Expanding your space means you’ll need higher dwelling coverage, which will increase premium costs. Additionally, you might need post-renovation insurance for the added space.
You may see lower insurance rates in the following scenarios:
- Upgrading Plumbing or Electricals: You will qualify for a discount, especially if the plumbing or wiring is old or doesn’t meet current building codes; this is because such upgrades lower the risk of electrical or fire damage.
- Roof Replacement or Upgrade: A newer, stronger roof made from durable material saves you money on premiums because your home is in a better condition to withstand potential perils.
- Adding Smart Security and Sprinkler Systems: Insurance discounts for home security and interior sprinkler upgrades are pretty standard. However, your savings will vary based on the effectiveness; for example, a local alarm system may earn a small discount compared to an automatic system that directly alerts the cops.
Moving Forward
Navigating home insurance for renovations has complexities, but ensuring coverage to protect your investment is crucial. Always discuss and communicate your plans well with the company before you get started. By being proactive about the insurance requirements, you can worry less and enjoy the process of upgrading your home.
Guest blog written by Benjamin Grennan. The information in this article is obtained from various sources and offered for educational purposes only. Furthermore, it should not replace the advice of a qualified professional. The definitions, terms, and coverage in a given policy may be different than those suggested here. No warranty or appropriateness for a specific purpose is expressed or implied. The opinions expressed by guest bloggers are theirs alone and do not reflect the opinions of AIS Management LLC, any subsidiary or affiliate of the same, or any employee thereof. We are not responsible for the accuracy of any of the information supplied by the guest bloggers.
