Originally published by Mike Knott on Bankrate.com.
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 don’t want to miss simply because you didn’t think about your home insurance during renovation.
Here’s how five common home upgrades or repairs can affect your homeowners insurance policy by either boosting or lowering the cost.
How renovations impact your home insurance
Some home renovations greatly increase the value of your home and the cost of your home insurance, while others not so much. Here’s what you can expect with the following popular home renovations.
1. Renovating your roof: decrease
A new roof may not be the most exciting home improvement, but it sure can save a lot of cash 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 very best 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. Based on the age of the roof, some policies won’t cover it at all. But the newer the roof, the more the insurer will spend to replace it.
Consider adding flood insurance if you live in a flood-prone area, as your flood insurance could cover the cost of damage or leaks to your roof.
2. Building a pool: increase
A pool may make you the most popular house on the block, but it means your home is the riskiest from an insurance standpoint.
The standard policy usually comes with $100,000 in personal liability protection, which would cover medical costs for a person injured in your pool and any legal expenses if you’re sued. However, an insurer may recommend that a pool owner opt for at least $500,000 in liability coverage.
The insurer also may require a fence around the pool with a lock to cover the newly built liability. If the pool has a diving board or slide, it will be considered an even greater potential hazard.
3. Adding an office for a home business: increase
Say you want to go full time making reclaimed-wood furniture at home for your Etsy site. Will your home insurance cover the assets of your newfound 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. Unfortunately, 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.
However, if your business doesn’t bring visitors to your home and requires little equipment or supplies outside of a basic computer, your existing home policy should do the trick.
That said, depending on your insurance provider, you may have a few options:
- Endorsement to your existing homeowners policy: This typically jumps the $2,500 protection amount to $5,000.
- Business-owners policy: Combines a wide array of coverages into a single policy.
- In-home business insurance: Costs about $300 a year, and features the same protection you would get if you were a larger company with smaller policy limits and premiums.
4. Expanding your space: increase
Sometimes a home needs to grow to accommodate an expanding family. That can mean adding more livable square footage, such as in a dank basement or humid attic above the garage. In other instances, a new addition may be in order.
Your insurance will need to be altered to account for the value of the new space.
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.
5. Upgrading your kitchen or bath: both
Sometimes nothing can give a house the facelift it needs 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, too, the renovation may be at risk.
For example, say your insurer based your coverage on a kitchen with laminate countertops and generic cabinets. But then you spend $40,000 on granite countertops, custom cabinets and top-of-the-line appliances. Would your existing coverage be sufficient to rebuild your remodeled kitchen after a disaster?
Not if you don’t update your policy.
Call your insurer about the renovation and provide records and photos to validate what you’ve done. Your premium most likely will go up because your home is now worth more.
One small bonus: If your contractor upgrades the home’s electrical or plumbing systems during a kitchen or bath renovation, you could wind up with an insurance discount. Depending on the type of upgrade, it could be as much as 20%. However, you will need to ask if you qualify for a discount. It won’t be given to you automatically.
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.
Do I need to increase my homeowners insurance after renovating?
Even though experts estimate that remodeling projects increase home values at least by 25%, many homeowners don’t increase their coverage.
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 the cost of your coverage.
Without increased coverage, should a disastrous event occur, any improvements you’ve 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 you purchase add-on coverage for other structures.
Adding additional home renovation coverage
So, do you need homeowners insurance during remodeling?
Short answer: Yes.
During renovations, you need to protect items in your home that aren’t 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 materials you’ve purchased, whether they’re on your property or are en route to your property. If they are damaged or stolen, construction material coverage will cover the costs of their 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 will protect your home should any damage occur to it and you don’t notice it until you’re back home.
Don’t forget to make copies of your contractor’s insurance
Contractors normally have insurance to protect them and you while they’re 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.