How renovations can impact your homeowners insurance

Home renovations can impact your rates, coverage limits, and may require additional coverage for your policy.

Pat Howard 1600

Pat Howard

Published May 13, 2020

KEY TAKEAWAYS

  • If your home is being remodeled, you’ll want to notify your insurance company

  • After a major renovation, you may need to increase the amount of insurance in your policy

  • If the renovation involves new construction or a vacant premises, you may need additional coverage

  • Get a copy of your contractor’s insurance to ensure they have general liability and workers comp coverage

There’s a lot more to remodeling your home than just picking out the right floor pattern and choosing a general contractor — you should also consider the impact that renovations can have on your homeowners insurance. If you plan on remodeling your home or you recently completed a project, inform your insurance company and make sure you have the right amount of coverage.

If you add an extension onto the property or replace your roof, the improvements will likely make your homes replacement cost go up, so you’ll want your dwelling coverage limit to reflect the higher rebuild value.

Depending on the extent of the renovations and the home’s occupancy status, you should also look into additional coverage for your policy. Standard homeowners insurance usually won’t cover your home if it’s been vacant for more than 60 days or dwellings under construction due to the increased risk of theft, vandalism, and storm-related damage. If you’re planning on living elsewhere throughout the course of renovations or you’re adding a completely new section onto the property, look into supplemental coverage like vacant homeowners insurance, a dwelling under construction endorsement for your homeowners policy, or builder’s risk insurance.

Lastly, check to see if the contractor or builder is fully covered with commercial liability coverage and workers compensation policy. If your contractor doesn’t have the necessary protection, it may not be worth the risk of hiring them for the job.

In this article:

What type of remodeling projects affect your homeowners insurance?

A home remodel can mean anything from renovating the kitchen to adding an entirely new room or wing. Regardless of the project, if you’re making drastic updates or improvements to the home, it will likely increase the value of the structure. Before construction begins, notify your insurance company to increase your coverage limits to reflect the value of the rebuilt or renovated section of your home.

In other words, if your home is insured for $300,000 and your insurer determines that a new addition or remodel increases its rebuild value by $30,000, they may recalculate the dwelling coverage limit in your policy to $330,000. Many companies also offer replacement cost coverage enhancements that you can add to your policy, like extended replacement cost. Extended replacement cost coverage automatically increases your dwelling limit an additional 25 or 50% in the event the home is destroyed and your coverage limit isn’t high enough. If you’re remodeling your home and unsure if the suggested coverage limit adjustment is accurate, extended replacement cost may be an option worth considering.

Any of the following scenarios may necessitate an update to your insurance policy:

Adding onto your home

If you’re building a new addition onto your home, you’re likely increasing its replacement value, or the cost to repair or replace the property. This amount is indicated in the dwelling coverage limit in your policy. If you’ve added onto your home, your dwelling limit will likely increase once your coverage is recalculated by your insurance company.

While the increased coverage may increase your insurance premiums, it’s a bad idea not to inform your insurance company about updates to your home. Your insurance company requires that your home be insured for at least 80% of its replacement cost before they pay out losses, so if your home is renovated and your dwelling limit isn’t adjusted, your claim may be denied if you don’t meet the coverage limit threshold.

Be sure to let your insurance company know about the addition prior to construction so that you can obtain the necessary coverage for the premises throughout the project.

Renovating your kitchen

Upgrading your kitchen can significantly increase the rebuild value of your home. If you’re transitioning from veneer to marble countertops or installing new cabinetry, flooring, and so on, you’ll want the limits in your policy to be updated accordingly so you can be fully reimbursed in the event of a disaster.

Replacing your roof

If you plan on replacing the roof of your home, be sure to contact your insurance company and let them know. A new roof adds value to your home, so your coverage limits will likely be recalculated, but you also may qualify for a discount. Many insurance companies offer discounted rates if your roof is under a certain number of years old. You may qualify for further discounts if your roof is made with stronger material to withstand windstorms, hail, and leaks.

Building a pool

Pools can affect your homeowners insurance twofold: they can increase the rebuild value of your property and can also be a liability hazard. If someone is injured in a pool-related accident and decides to press charges, you’ll likely be responsible to pay out the damages. If you’re planning on adding an in-ground or above-ground pool, you’ll want to be sure it’s covered under the liability section of your policy. In most cases, pool accidents are covered, but your insurer may require a fence with a gate around the exterior of the pool as a condition for coverage.

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Is your home covered during renovations?

Adjusting your coverage limits isn’t the only reason to inform your insurance company of renovations prior to the start of the project — you should also make sure that the remodeling process itself is covered. There are multiple scenarios where your remodel may or may not be covered by your homeowners insurance policy.

If your home is considered “under construction”

A standard homeowners insurance policy specifically excludes theft to a dwelling under construction along with materials and supplies used for the build. Your coverage typically won’t pick back up until the home is finished and occupied. This is where you’ll want clarification from your insurance company, as your definition of “construction” may be different from theirs.

For example, a simple interior update to a room in your home may necessitate alerting your insurer to update your coverage limits, but you likely won’t need to add any coverage to your policy to cover the materials and supplies involved in the renovation. Conversely, if you’re adding a new room onto your home or building an attached garage, your insurer may view your home as under construction and exclude theft loss from your policy until the project is complete. Why is that? Because it generally takes little to no effort to break into a construction site, making them hotbeds for theft, vandalism, and arson.

Before construction starts, check with your insurer to see if you need any special renovation coverage to ensure you’re fully covered. Many insurance companies offer dwelling under construction coverage that you can add onto your policy for an additional premium.

If your home is vacant

Your homeowners insurance policy also won’t cover perils like vandalism if the dwelling has been vacant for more than 60 consecutive days prior to the loss. If your home renovations require you to live elsewhere for a few months, you may want to consider vacant or unoccupied homeowners insurance — many companies offer this type of policy in addition to the standard home insurance product. If you go this route, make sure you pause your homeowners insurance before the vacant home coverage kicks in. When you move back in, you’ll want to start your standard coverage back up.

If the remodeling work is faulty or defective

Your homeowners insurance policy specifically covers home structural collapse if it was caused by the use of defective material or methods in construction, remodeling, or renovation if the collapse occurred during the course of the work. That means if that half-finished second story bedroom addition falls through into your family room, the cleanup and repairs may be covered by your insurer.

If it’s a DIY project

If you plan on remodeling the home yourself or you anticipate that a friend or family member will be helping you out throughout the course of the project, you’ll want to check the personal liability and medical payments coverage in your policy. Do-it-yourself construction projects involving other people open you up to potential lawsuits if the person helping you is injured during the job.

While it’s unlikely that a friend or family member would sue you over a remodeling accident, they may need help paying for medical bills as a result of their injuries — that’s where your no-fault medical payments protection comes in. With medical payments coverage, if a guest is injured in your home, they simply submit a claim through your insurance company and are reimbursed for medical payments like copays and deductibles. You can typically have up to $5,000 in medical payments coverage.

Verify your contractor’s insurance

Prior to renovations, ask your contractor or builder for a copy of their insurance for your records to ensure they have adequate protection and that all of your bases are covered financially. Your contractor should have commercial liability and workers compensation insurance to cover the wages of workers who are injured on the job.

If the contracting work involves new construction, check with your builder to see if storm damage and theft loss to the property itself or building materials are covered by their insurance. In many cases, this caveat will be spelled out in the builder’s contract. Typically, homes under construction or renovations involving extensive add-ons will require either a dwelling under construction provision to your homeowners insurance or a separate builder’s risk policy. If your contractor isn’t carrying a builder’s risk policy (also known as “course of construction” insurance), it may be your responsibility to obtain this coverage.