Does Homeowners Insurance Cover Renovations?

The amount of homeowners insurance you purchase is determined by factors such as the size, condition, and cost of rebuilding your home in the event of a disaster. But what if those variables change, example, as a result of a deck or kitchen renovation? Is refurbishment covered by homeowner's insurance? Here's what you need to know about house insurance coverage if you're planning a makeover or renovation.

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TAKEAWAYS IMPORTANT

• While your existing homes insurance coverage may cover renovations, any major modifications and additions may leave you underinsured.
• Check to see if your contractor has enough liability and workers' compensation insurance.
• Consider raising your liability coverage limits in the event of a major disaster and/or injury.
• Before you begin, talk to your home insurance agent about your renovation plans to see whether you need to adjust your coverage limits.

Should I Inform My Home Insurance Agent If I Make Renovations?

Renovations are typically covered by conventional homes insurance plans. Even so, it's a good idea to check with your agent before the renovation begins to ensure that you'll be sufficiently protected both during and after the project. There are two significant reasons for this:

• A renovation that raises the rebuilding expenses of your home could leave you uninsured.
• If someone is hurt during the renovation, your current liability limits may not be enough.

Here's an illustration. Assume your home is covered for $200,000 in dwelling damage. After your deductible, that's the amount your insurance company would pay toward reconstructing your home in the event of a covered loss. Let's imagine you renovate your kitchen extensively, using higher-quality materials and adding square footage to your home. Your rebuilding costs have increased to $240,000 due to the kitchen remodel.

You would be properly protected if something awful happened if you increased your coverage limits based on the new rebuilding expenses. If you don't update your coverage, you risk being severely underinsured. In this situation, your insurance would only cover $200,000 of the $240,000 rebuilding costs, leaving you to foot the bill for the rest.

Which policy modifications should I implement?

Before you start building, check with your home insurance agent to see if you need to update your current coverage. Your agent may advise you to do the following, depending on the specifics of your renovation:

• Increase the quantity of insurance you have for your home's reconstruction. According to the Insurance Information Institute (III), you should be prepared to send your insurance company your documents and receipts so that they can accurately analyze your insurance needs.
• During the renovation, increase your liability coverage limits. Liability insurance protects you in the event that someone who doesn't live with you gets hurt while helping with the renovation. This is especially critical for do-it-yourself projects (contractors should have their own insurance). Increase the amount of no-fault medical coverage on your policy, according to the III. If someone is harmed, they can submit their medical costs to your insurance carrier directly. According to the III, this can reduce your chances of being sued.
• After the refurbishment, increase your liability coverage limits. Consider boosting your liability coverage permanently if your renovation includes a "attractive nuisance," such as adding a swimming pool or hot tub. An excess or umbrella policy, according to the III, is a cost-effective solution to improve your overall liability protection.
• Increase your personal property insurance coverage. If you purchased any pricey things as part of the renovation, your personal property coverage limits may need to be increased. Assume you construct an addition to house a collection of paintings or comic books, and then add to it. Any new, valuable objects may require supplementary coverage, such as a floater or e-policy.
• Coverage for "dwellings under renovation" should be added. Dwelling insurance for renovations protects the building supplies on-site or in transit to your home. After all, items getting destroyed or stolen from job sites isn't unheard of. The insurance also covers the possibility of a foundation collapse.
• Insurance for a vacant home should be added. You may have to live somewhere else while your house is being renovated, depending on the scope of the work. Consider purchasing vacant home insurance if you'll be gone for more than 60 days. You'll be protected even if harm happens and stays unnoticed for a long time.

Is it necessary for my construction contractor to be insured?

You should request a copy of your contractor's insurance coverage, including a commercial business/general liability policy and workers' compensation (don't be hesitant to take a quick photo of these docs for your records), according to the III.

You must have appropriate insurance for anyone you hire to work on your remodeling; otherwise, they may sue you if they are injured on the job. It's better to choose another contractor if a potential contractor can't (or won't) verify their insurance coverage.

Will Renovating My Home Increase My Insurance Premiums?

Your house insurance premiums may climb as a result of a remodeling, but this isn't always the case.

Higher premiums may result from projects that raise the value of your house. If you add a room to your property, whether it's a new bedroom, a second owner's suite, or a family room, the extra living space will almost certainly lead to a higher insurance payment. This is because the extra square footage raises the cost of rebuilding the home.

Renovations that use higher-end materials, such as marble in the bathroom or commercial-grade appliances in the kitchen, also raise your home's rebuilding costs—and, as a result, your insurance premiums.

While many home modifications raise your insurance premiums, others may have the reverse effect. Let's say you replace your roof with a more durable material or add shatter-resistant windows and storm shutters to your home. Your premiums may actually fall in these conditions since your home will be more resistant to storm damage. Installing safety measures in the home (such as smoke detectors, deadbolt locks, or a burglar alarm) or updating the heating, plumbing, or electrical systems may also qualify you for a discount.

Final Thoughts

Your existing coverage limits may be insufficient to match your home's post-reno worth and liabilities, regardless of the type of renovations you perform. Always check with your insurance agent before beginning construction to see if your current policy will cover you adequately before and after the remodeling. If not, make sure your policy is up to date before starting any work. Keep your agent informed if the makeover evolves into a larger project along the way—for example, if you decide to add that hot tub.