How Do Renovations Impact Home Insurance? (2024 Guide)

15 Mar

Making renovations to your home can have a major impact on your insurance coverages as your risk profile changes. Adding square footage, putting in a swimming pool, outbuilding or upgrading your electrical may change the value of your home which could leave your underinsured. 

Major upgrades such as adding square footage to your home or putting a pool in the ground will absolutely change the value and risk factors for your home so you should notify your insurer. However, minor changes such as replacing your carpet or adding landscaping does not typically require notifying your insurer. 

Should I Tell My insurer About Renovations?

When starting a renovation or other major changes to your home you should consider letting your insurer know about timelines for the projects as well as the scope of the project so your insurer can determine whether it will be necessary to up your coverage levels or add endorsements to your policy. 

Your insurer may ask for documentation related to your renovation including the following:

  • Description of the renovation: This would describe the project and what would change in your home. 
  • Permits: If your project requires permits you may need to send copies to your insurer, so they are confident the work is done properly. 
  • Cost: In order to determine the cost of rebuilding of your home your insurance provider will need to know how much you have spent on the renovation. 
  • Photos: When the project is complete your insurer may want to see photos of the finished changes so they can determine how much value the changes have added to your home. 

If you don’t inform your insurer of major changes they may not pay for the damage if you have to make a claim. Depending on the wording of your policy, a lack of notification regarding changes to your home may breach the terms of your policy and could result in a denial of your claim. 

Common Claim Restrictions 

Insurance policies often come with restrictions that can become an issue during or after renovations which is why it is important to understand your policy and any restrictions or exclusions included. 

Many homeowner policies will not cover pre-existing conditions so if your contractor discovers issues such as water damage or structural issues while doing the renovation your insurance company will not cover the damage. 

The same issue will come up if your contractor makes a mistake or installs something improperly. Any resulting damage would not be covered. As an example, if your contractor makes a mistake installing a new toilet and it leaks a month later, damaging your walls, your insurer may not cover the damage. 

Always choose reputable contractors that are licensed and insured. Make sure all necessary permits are pulled and the renovation is up to current building codes.

Liability Coverage and Remodels

Remodeling projects also increase the chance of injuries on your property as materials and construction equipment are present. Liability insurance will step up to cover any injuries that happen on your property during the renovation. If uninsured workers are on your property and working on your project, you can be held liable if they are injured. 

This is why it is very important to make sure your contractor and all workers on the project are carrying insurance and workers compensation insurance, so you are not liable for any injuries.

Up your coverage levels

Once the renovations are complete, the cost to rebuild your home may have increased so it may be necessary to up your coverage levels. Your insurer should be able to help you determine the rebuilding costs of your home and make sure you are fully covered. 

While your premium may increase due to higher coverage levels, keeping your coverage the same can be an expensive mistake. Once your coverage levels are exceeded, you will have to cover any additional damage out of pocket which can be very expensive if major damage occurs.

How to Limit Risk

One of the best ways to limit your personal financial risk is to research and only hire licensed and insured contractors. Verify their credentials, talk to previous clients for a review and ask to see current insurance policies for all their employees as well as workers compensation coverage.

As the work is being done, make sure all flammable materials are stored properly to lower the risk of fire. In addition, keep the renovation area secure to avoid theft of materials, as well as vandalism and accidents. 

Always document the project with before and after photos as well as detailed descriptions of the work that was done. 

Communicate regularly with both your contractor and your insurance company during any major renovations and make sure your insurer updates your coverage levels once the work is complete if necessary. 

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