Posted On 01 Oct 2021
Insurance Changes for Renovated Homes
In general, standard homeowners insurance policies cover renovations. Still, it's a good idea to check with us before the project gets underway to make sure you will be adequately covered during and after the renovation. There are two key reasons why this is important:
- A renovation that increases the home's rebuilding costs could leave you underinsured.
- Your existing liability limits may not be sufficient if someone gets hurt during the renovation.
Here's an example. Assume your home has $200,000 in dwelling coverage. That's the amount your insurance company would pay toward rebuilding the house for a covered loss—after your deductible, of course. Now, say you do an extensive renovation to your kitchen that uses higher quality materials and adds square footage to your home. With the kitchen update, your rebuilding costs are now $240,000.
If you increase your coverage limits based on the new rebuilding costs, you would be adequately covered if something bad were to happen. However, if you don't update your policy, you could end up woefully underinsured. In this case, your policy would pay only $200,000 of the $240,000 rebuilding costs, and the rest would have to come out of your pocket.
Which Policy Changes Should I Make?
Before construction gets underway, ask us if you should update your existing policy. Depending on the details of your renovation, we may recommend that you:
Increase the amount of insurance you have to rebuild your home. The Insurance Information Institute (III) advises that you should be prepared to forward your records and receipts to your insurance company so they can accurately assess your insurance needs. Take photos before, during, and after a renovation so you have a visual record of the project. And make sure you save copies of any contracts and receipts.
Increase your liability coverage limits during the renovation. Liability coverage helps protect you if someone who doesn't live with you is injured while helping out with the renovation. This is especially important for DIY jobs (contractors should have their own insurance). The III recommends increasing the amount of no-fault medical protection on your policy. That way, if someone does get injured, they can submit their medical bills directly to your insurance company. The III says this can lower your chances of getting sued.
Increase your liability coverage limits after the renovation. If your renovation includes an "attractive nuisance"—such as adding a swimming pool or hot tub—consider increasing your liability coverage permanently. The III suggests that an excess or umbrella policy is a cost-effective way to increase your overall liability protection.1
Increase your coverage for personal possessions. If you bought any expensive items as part of the renovation, you might need to bump up your personal property coverage limits. Say you build an addition to exhibit a collection of art or comic books—and then add to the collection. Any new, valuable items might need additional coverage in the form of a floater or endorsement.
Add "dwelling under renovation" coverage. Dwelling under renovation insurance protects the building materials at—or en route to—your property. After all, it's not unheard of for materials to get damaged at or stolen from job sites. The insurance also provides coverage for foundation collapse.3
Add vacant home insurance. Depending on the renovation, you might live elsewhere while your house is under construction. If you'll be away for more than 60 days, considering buying vacant home insurance coverage. That way, if damage occurs and goes unnoticed for a while, you will still be protected.4
Should My Building Contractor Have Insurance? According to the III, you should ask to see a copy of your contractor's insurance policies, including a commercial business/general liability policy, as well as workers' compensation (don't be afraid to snap a quick photo of these docs for your records).
Anyone you hire to work on your renovation must be adequately insured; otherwise, they could sue you if they get hurt on the job. If a prospective contractor can't (or won't) verify their insurance coverage, it's best to find one that will.
Will My Insurance Premiums Go Up If I Renovate My Home?
A home renovation could cause your home insurance premiums to rise, but it doesn't always.
Projects that increase the value of your home may lead to higher premiums. If you add a room to your house, for example—whether it's a new bedroom, second owner's suite, or family room—that increased living space will likely result in a bigger insurance bill. That's because the added square footage bumps up the home's rebuilding costs.
Similarly, renovations that install higher-end materials, such as marble in the bathroom or commercial-grade appliances in the kitchen, also increase your home's rebuilding costs—and, therefore, your premiums.
While many home renovations raise your premiums, certain improvements could have the opposite effect. Say you replace your roof with sturdier materials, or you install shatter-resistant windows and storm shutters. In these situations, your premiums could actually decrease because your home will be more resistant to storm damage. Likewise, you might get a discount if you install safety devices in the house (e.g., smoke detectors, dead-bolt locks, a burglar alarm) or if you update the heating, plumbing, or electrical systems.
Premium discounts of up to 20% may be available for certain types of improvements such as installing a sprinkler system and a fire or burglar alarm that notifies the fire department or police.
Here are five common renovation projects that may require additional insurance:
- Depending on your level of experience, you may need the help of a plumber or electrician. Make sure the contractors you hire are bonded and insured. Do they carry liability insurance? Ask to see their certificate of coverage.
- Check with us to see if you should increase your homeowners coverage. If your renovation substantially increases the value of your house, you could be underinsured if you haven’t raised your limits. Generally, you need enough insurance to replace 80% of your home’s value.
- Will friends be helping you? Ask about raising your medical expenses coverage.
- You may need a plumber to help you move a water line or drain. Bear in mind that water damage caused by your faulty workmanship won’t be covered by your homeowners policy. On the other hand, if you use a contractor, their business insurance should cover the damage to your home.
- Will that expensive marble be sitting in your driveway after it’s delivered? Costly materials have a way of walking away from a job site. Check to see if your policy covers theft or damage to your building materials.
- Most homeowners policies only provide limited coverage (up to about $2,500) for office equipment. If you have items that exceed that amount, you’ll need additional coverage. We can recommend some options. If you’re doing work for your firm at home, make sure you’re covered by the company’s business and workers’ compensation policies.
- If you’re self-employed, you may need a separate business policy, especially if clients visit your house.
- Talk to us about adding a new room to your homeowner's policy. You may be able to get a discount if you install energy-efficient windows or heavy-duty locks on an exterior door.
- Is the project insured against severe weather? Theft or vandalism? You may need a builders risk policy.
You’re planning to create extra living space in the basement for your growing family. You’ve contracted to have a French drain and a sump pump installed to prevent water from leaking in. You’ve also decided to live in a friend’s house while you work on the project.
- If your house is unoccupied during construction, you may need vacant home insurance.
- Be sure to get a warranty on the French drain. Flooding isn’t covered by homeowners insurance. However, you can add water backup coverage to your policy to pay for damage if your sump pump fails.
The Bottom Line
No matter which type of renovations you make, your existing coverage limits may be too low to match your home's post-reno value and liability. We can guide you through the necessary changes. It is our specialty! However, we can’t advise you if we are unaware of the changes you are making. Many homeowners assume their homeowners' policy is liquid and will cover anything on the premises. That simply is not the case. It is your responsibility to inform us of changes.
- Information Institute. "If You Are Planning to Remodel Your Home, Notify Your Insurance Company First.".
- Insurance Information Institute. "What is covered by standard homeowners insurance?"
- American Family Insurance. "Insuring Your Home While Remodeling It”
- American Family Insurance. "Insurance for Vacant and Unoccupied Homes."