Home Renovations: When Do They Make a Difference for Your Insurance?
Home renovations add value to your home, and that means they affect your home insurance.
If you're replacing that stiff hinge on your cupboard door or painting an accent wall in your bedroom, it will be a waste of everyone's time to pick up the phone and let your insurance company know about it. But if you're redoing your kitchen, adding a deck, putting in a new floor, or adding a swimming pool, that's a whole other story.
Virtually any home renovation or addition can affect you homeowner's insurance. As soon as you enter the planning stages of your home improvement project, you should look into how it will affect your insurance. This article will give you information and pointers so you know what to do and what to be on the lookout for when planning your renovations (for a primer on home insurance, see The 5 Basic Types of Home Insurance Coverage You Need to Understand).
Neither Snow nor Rain...
The United States Postal Service's famous creed goes,
Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.
If only our homes could bear those elements as well as our postal workers! As many homeowners have had to learn from unfortunate experience, a damaged or poorly maintained roof could result in your floor and furniture becoming acquainted with the outdoor elements.
The majority of insured losses due to snow, wind, hail, and rain are due to a roof that has failed (find out whether your homeowners insurance covers damage from hail). That's good news for people looking to get their hands dirty on a home renovation project or hire someone to do it: replacing an aging roof with a new one is one of the easiest ways to reduce your homeowner's insurance premiums. In some cases, a new roof could means 10 to 20% savings. This is especially so if you live in an area that is prone to hurricanes or hailstorms (find out How Insurance Companies Calculate Your Home Insurance Premiums).
To be sure you get the best insurance discount, get written confirmation from your contractor that the roof complies with the strictest building codes. Submitting this documentation to your insurer when you notify them of the new roof will make a good case for easing your monthly rate.
Adding a Swimming Pool
While a new roof is the easiest way to decrease your home insurance premiums, building a swimming pool is the easiest way to increase them.
If you like swimming or cooling off by floating in the water, I don't want to discourage you from adding a pool to your home. But talk to your insurance agent or broker before signing a contract with the builder (see What Is an Insurance Broker? to learn what they can do for you). Make sure you know what you're getting into and if there are ways to keep the premium increase on the lower end.
Diving boards and slides are fun, but they will increase your premiums. In almost every jurisdiction, you'll be required to put in a fence and locked gate to around your pool area, but see whether getting something beyond the minimal protection can limit your premium increase.
Adding a swimming pool will also increase the value of your house, so be sure to increase your coverage. It's hard to know exactly how much of an increase you'll need without knowing the details of your particular situation, so be sure to bring this up with your agent or broker (if you don't have one yet, see these 5 Questions to Ask Before Choosing an Insurance Agent).
Redoing Your Kitchen
Major kitchen renovations can significantly increase the value of your home. You should report these renovations to your insurer to make sure your coverage is adequate.
If you bought a home with laminate countertops, linoleum floors, and appliances that look like they might be older than you, chances are you didn't need a whole lot of coverage in the event of a loss. But now that you've put in granite countertops, custom cabinets, a hardwood floor, and shiny, top-of-the-line appliances, your old policy limits might no longer be enough – and you don't want to have to go back to walking on linoleum if there is significant damage to your kitchen.
It's not a bad idea to get documentation and take before-and-after photos to capture the transformation. Be sure to include details about any upgrades to the plumbing and electrical systems. Modernizing your kitchen will result in an increase in premiums, but that can be offset by upgrading the electrical and plumbing to increase safety.
Coverage During the Renovation
Make Sure the Contractors Are Insured
Many people are tempted to work with an unlicensed and uninsured contractor. They'll likely offer you a lower price, which can be attractive when the price range for these projects are so high. But if a liability issue arises, you'll wish you had dealt with a licensed and insured contractor instead.
For larger projects, you'll probably hire a general contractor. They, in turn, will hire subcontractors to do much of the work. Both the general contract and subcontractors should have liability insurance. The general contractor especially should also be bonded (with a surety bond). This ensures that you can recover monetary losses if the contractor cannot complete the job due to illness, bankruptcy, or whatever reason.
Don't be afraid to be assertive about asking contractors about their insurance. You're entitled to this information and their coverage matters to you. Being too timid to ask might leave you suffering a loss due to an accident or the contractor's negligence.
Make Sure You're Insured, Too
You might need additional coverage yourself. Let's say you're adding a second floor to your home. To do that, you'll need to remove most of the furnishings from your home until the renovation is complete. So, you'll likely rent a trailer, park it on your property, and store your stuff in it. Now, here's where the details of your policy really come into play. Does your homeowner's insurance cover the trailer and the items stored in it? Would it cover your furnishings if they were housed in a storage facility instead? Ask your agent or broker before you decide on the right option for storing your stuff.
Builder's Risk Policy and Completed Operations Policy
Okay, I might be getting a little bit off track here when it comes to home renovations and how they affect your insurance. But I wouldn't want to send you off to plan and execute your home renovations without first telling you about these two policies.
Completed Operations Policy
A completed operations policy will cover you when the project is complete. If a plumber installs some new pipes during your summer renovations but they freeze and burst once winter comes, this insurance will cover you for the losses (for related reading, see 5 Water Damage Home Insurance Scenarios: Are You Covered?).
Builder's Risk Policy
Builder's risk will cover you in case the contractor suffers a loss related to equipment while working on your home. If, for instance, they leave tools and materials on your property and they are stolen overnight, this type of policy will cover you.
If you're not sure your project is big enough to require these kinds of policies, ask your agent or broker about your level or risk and their advice for covering it.
Smart Planning Is Part of the Process
Any renovation or addition big enough to change the value of your home needs a lot of planning. You'll need a clear idea of what you want done, find the right people to do it, and make sure you've got the budget to see it through. There will already be a lot on your plate during the planning process, but make sure you take the time to work through the insurance implications of your project before embarking on it. Find out how the renovation will affect your premium, what kind of coverage you might need, and what you can do to keep the increases minimal.