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Home Renovation Insurance: When Do You Need It?

Summary

Renovating or remodeling a home can increase its value, but the construction phase presents additional risks.

  • Home renovation insurance offers protection for your project while the work is happening, because additional risks are present that might not be covered by your standard policy
  • Even if you are doing the renovation work yourself, additional coverage might be necessary

The home renovation trend shows no signs of slowing down in 2022. 

Maybe the hot housing market has convinced potential buyers to work with what they have instead of buying at the top of the market — or perhaps the endless months of working from home have spurred homeowners to change their surroundings. Whatever the cause, home renovation projects are skyrocketing.

Consider some of these statistics from Houzz:

  • The amount spent on home renovations grew 15% in the past year to a median of $15,000.
  • Kitchen projects continue to dominate, with major remodels costing an average of $40,000 in 2020.
  • Exterior upgrades became more popular in 2020, with homeowners increasing their investments to improve outdoor areas such as decks and porches by 25%.

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How Renovations Affect Home Insurance

While cosmetic changes like painting and swapping out light fixtures can improve your home’s appearance, these types of activities aren’t really construction projects. That means you probably don’t need to contact your insurance provider to let them know your plans.

However, if you’re tackling projects that could increase your home’s value, it’s important to contact your carrier. This is because if you’re updating a bathroom and replacing vinyl flooring with tile or upgrading the countertops, you are adding to your home’s value — and you will want to have those improvements reflected in your insurance coverage.

Remember: Your home insurance policy protects your structure based on the replacement cost at the time you acquired your homeowners insurance. If you are renovating a kitchen or building an addition, you may be  making improvements that could affect the home’s value or total square footage. Notifying your insurance carrier about these changes protects you. 

Think of it this way: Your insurance coverage will pay to rebuild your remodeled kitchen if it catches fire, but if you don’t notify your carrier of the upgrades, there may not be enough coverage to include these improvements. If the worst were to happen, you need to talk to your insurance agent to make sure your policy is up-to-date. 

Be aware that your homeowners insurance policy may require you to notify your carrier about home improvement projects before the work even starts. It’s good practice to check your policy or call your agent before you begin any work on your home.If you are doing extensive work, your insurance company might recommend or require an additional coverage, which is also sometimes called “builder’s risk” coverage.

What Is Home Renovation Insurance?

There are many new trends regarding covering renovation projects, but the most common is to add an endorsement to your homeowner’s policy or a separate builder’s risk policy.  In the end, your insurance agent will be able to navigate these options for you.  Your agent will want to make sure that your homeowners insurance covers your home-improvement project while the work is happening.  Policies may have exclusions or limitations on coverage for renovations that the insurance company is not aware of. It is extremely important that your insurance policy has the correct replacement cost value, including  your renovations. 

The contractor working on your home improvement project should also carry insurance — and it’s important for both parties to have appropriate coverage. In fact, you should ask to verify the insurance coverage for anyone working on your home improvement project. Accidents can happen, and this is particularly true when working with machinery in an area under construction.

If you are doing the work yourself, it’s still important to notify your agent.  Damage, injuries and replacing stolen or vandalized materials can be very costly. Should you decide to complete the renovations yourself rather than hiring an external professional, you will want to ensure the home  coverage will apply as some carriers require the work be done by licensed contractors. 

Insurance Coverage for Vacant Homes

If the work you are having done is extensive and disruptive enough that you decide to decamp to another residence until the work is completed, make sure you contact your insurance carrier.

Many homeowners insurance policies carry “vacant home” exclusions, and you don’t want to find out after an incident that you aren’t covered simply because you made temporary arrangements to avoid the dust and noise of your renovation work. Because empty houses can become easy targets for burglars, insurance policies can place limits on the number of consecutive days a home can be covered when there’s no one living there.

If your renovation efforts have you considering moving out until the work is done, talk to your insurance agent to make sure your home is covered — especially if you are looking at a completion date that is a month or more away.

Will My Homeowners Insurance Premiums Go Up If I Renovate?

The short answer is that it’s complicated. Your premium might increase by a little, a lot — or not at all. Generally speaking, if you are renovating and putting money into your home, you will increase its value. When that happens, the cost to rebuild your home may increase. This is what insurance coverage is designed to do: replace your home, if it is destroyed in a fire, tornado or other covered peril. 

However, let’s say you have an older home and part of your renovation work includes installing more fire-resistant features — such as a sprinkler system — or maybe you are replacing older and outdated electrical wiring. These changes actually make your home safer by reducing the risk of fire, which could potentially save you money on your insurance policy. Replacing an old roof with a new one is another home-remodeling project that could lower your premium. With new materials, the risk of expensive leaks and water damage will go down.

This is why the real answer — depending on the age and condition of your home — might be a mix of increases and decreases. When you upgrade your home, its value increases, and so will your premium. But by including additional safety features or bringing an older home up to current code, you could save some money.*

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The Bottom Line

Renovating or remodeling your home can add value and years of additional enjoyment. Big projects can also be stressful and expensive during construction. Be sure to take some time before you start a project and find out what your insurance carrier requires as far as home renovation insurance coverage.

Not sure where to start? Talk to an Expert Agent today.

Disclaimer: 

* Savings, if any, vary based on a consumer’s profile and other factors. Contact your insurance agent for more information.

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