10 Home Upgrades that Will Increase Your Insurance Costs
Home improvements that increase your risk or the value of your home can result in changes in your insurance coverage.
According to Home Advisor’s True Cost Report, 80% of homeowners intend to tackle home upgrades this year. Existing homeowners may want to increase their home’s value or comfort level, and home upgrades are often a necessity for new buyers trying to enter the housing market.
But if you're planning any home improvements, it's important to know that any changes to the structure of your home or the use of your property can have an effect on your insurance premiums (for a more general discussion, see Home Renovations: When Do They Make a Difference for Your Insurance?).
The 10 home upgrades featured in this article typically increase the value of your home or your risk as a homeowner. For those reasons, you'll usually end up paying more in insurance once these renovations are complete.
1. Adding More Square Footage
Developing a basement, attic, or garage for extra space adds square footage, but it also increases your insurance costs. It costs more to rebuild a larger home and without updated coverage (which comes at a price), you won’t have sufficient funds to rebuild.
Always let your insurer know about a major addition before the work begins. Besides needing a higher home insurance limit to accommodate the increased value, you might need additional protection during construction and for the newly finished areas. For instance, a musty basement area that becomes a finished recreational area may demand sewer backup coverage (for related reading, see 5 Water Damage Home Insurance Scenarios: Are You Covered?).
If you intend to rent out your new space, you’ll need landlord coverage, too (find out What You Need to Know About Your Insurance Before Renting Your Place Out on Airbnb).
2. Revamping the Kitchen or Bathroom
Bathroom and kitchen renovations spruce up a home and can be a great way to increase its value, particularly if you’re using high-end finishes such as granite countertops, solid-wood cabinets, stone floors, and expensive fixtures and appliances. But that increased value can mean an increase in your premiums.
Whether you decide to buy replacement cost coverage or actual cash value coverage influences your insurance costs too. Actual cash value coverage costs less to buy but it will only pay the cost of the item less depreciation if you ever file a claim. It might, however, be enough for a small renovation. Replacement cost coverage costs more to buy, but pays the total cost to replace items and suits large renovation investments.
3. Adding Fire Features to Your Home
Adding a wood stove, fireplace, outdoor fireplace, or fire pit increases fire risk. Most insurers provide coverage for fire features, but whether you'll pay extra for it depends on your existing coverage (learn more about Fireplaces and Wood-Burning Stoves: How to Use Them Safely and Keep Your Home Insurance Costs Manageable).
Your personal property limit may cover a loss if you own a small portable fire pit, but you’ll probably need to increase your coverage (and your insurance costs) if you install an elaborate permanent fire pit or a new wood fireplace.
4. Building New Structures
A typical homeowner’s policy includes coverage for additional structures on your property, but usually only up to a maximum of 10 percent of your overall coverage limit.
If you’re adding an expensive deck, gazebo, pool house, boat house, or garage, you may need to boost your insurance coverage. Of course, this also means increased insurance costs.
5. Creating a Home-Based Business Office
Your homeowner’s policy may provide limited protection for business equipment, and you may be able to add an endorsement to your policy for an additional premium for some inventory or specialized equipment.
Depending on the nature of your business, your clients or customers might visit your home. If they do, that puts you at an increased liability risk and you'll probably need a business insurance policy to protect your from the costs associated with lawsuits (learn more in Back to the Basics: The Key Elements of Your Business Insurance Policy).
6. Changing Building Materials
Insurers look at a lot of factors when estimating the risk of insuring you and your home. One of those factors is the constructions techniques and materials used to build your home. Expensive materials cost more to replace, and your insurer will charge you more accordingly.
Underwriters also look for fire retardant materials. If you’re thinking of covering stucco with cedar shakes or lap siding, your premium could rise. Some insurance companies frown upon vinyl or aluminum siding because they’re susceptible to wind and hail damage (for a discussion of other cases, see Does Homeowners Insurance Cover Natural Disasters?).
If you're not married to using a particular material and want to avoid additional costs, discuss your renovation plans with your insurance agent before you begin work.
7. Installing a Pool or Hot Tub
There's an insurance industry term for these upgrades: attractive nuisance.
What that means is they're basically a magnet that draws others to your property, even if you're not home. And if a child decides to take a dip in your pool while you're at work and injures themselves, you can be liable for court costs, legal fees, the court settlement, and ongoing medical bills. Because of all that, you'll need more liability coverage.
You'll probably also need a higher policy limit to account for the increased property value.
Some people are tempted to just keep the new pool or hot tub under wraps so their insurance costs stay low, but that isn't a viable option. If you fail to inform your insurer about these upgrades, they might reject your claim or drop your policy altogether. And if your auto insurance is bundled up with your home insurance, you could lose that coverage, too.
8. Adding a Trampoline, Swing Set, or Jungle Gym
A trampoline, sing set, or jungle gym is a lot of fun for the kids, but they're also risky. That's especially so since, like a pool, they can attract other children to your property, even when you're not home.
Some insurance companies won't cover play equipment at all, while others will only do so if it meets other standards and the homeowner installs safety equipment.
As with pools and hot tubs, adding any of these items without telling your insurer is a material misrepresentation which can lead your insurer to deny all claims (not just those related to this equipment). Your insurance company may also cancel your policy, making it very difficult to insure again. You would also pay all lawsuit and medical costs out-of-pocket if someone gets hurt on your property (find out Why You Need a Lot of Liability Coverage - Even if You're Law Abiding).
If you do find an insurance company willing to insure these items, it will increase your insurance costs due to increased liability.
9. Making Structural Changes
Substantial renovations, such as removing walls to create an open floor plan or replacing the roof structure, an exterior wall, or the foundation, increases risks and can trigger changes in your insurance.
Your insurance company may insist your homeowner’s policy reverts to another policy form while your home is under construction. You may need to buy a builder’s risk policy to protect yourself from the costs of a collapse, hazardous materials such as asbestos or lead paint, and work improvements required for building codes.
Some of these changes may significantly affect the scope and duration of your renovation, your insurance coverage, and premiums. The cost depends on the scope of the work and the risks. As always, an insurance professional can advise you.
10. Leaving Home Vacant During Renovations
If you bought a home and haven’t moved into it yet, or you’ve rented it and it's vacant now, contact your insurance provider to ensure you’re protected during renovations.
Many insurance policies don't cover your home for most perils if it's left vacant. And if they do, they might only cover it if you let them know that it will be unoccupied. They might also only agree to cover a vacant property for a higher premium or charge you a fee for a vacancy permit.
Know What You're Getting Into
In most cases, the increased insurance costs won't significant enough to deter you from pursuing your home improvement goals. But it's important to know how your renovations could change your insurance before deciding whether they're truly worthwhile and within your budget.