American homeowners spend over $400 billion each year on DIY projects, renovations and home repairs. Homeowners may be updating their existing homes to better fit the needs of their family, hoping to increase their home’s value in a hot housing market, making necessary repairs to maintain the condition of their properties or more resilient to withstand the wrath of Mother Nature. While a remodeling project can make your space your own or increase your home’s resale value, you should consider how these home improvement projects affect your home insurance coverage limits and homeowners insurance rates.
Some home improvement projects can increase rates, others can decrease rates and many require updating your coverage. Failing to think about your home insurance when doing renovations could leave you underinsured. Bankrate can help you understand how to make sure your home insurance fits your changing needs if you take on a remodeling project.
Renovations that increase home insurance rates
A major renovation can greatly increase the value of your home and the cost of your home insurance. A recent analysis conducted by the Insurance Information Institute (Triple-I) showed that homes’ replacement values increased by more than 13% in the past year due to inflation and supply chain issues, so it is important to assess your coverage when completing a renovation project. You should know what you can expect if you plan to proceed with one of the more popular home renovations.
Building a swimming pool
In certain locations, adding a pool to your home can increase its value and offer an incentive to would-be buyers. However, a pool is considered an “attractive nuisance” and significantly increases your liability risk, which will likely increase your homeowners insurance premium.
A standard homeowners insurance policy usually includes liability coverage, which is designed to help cover medical costs for a person injured on your property and legal expenses if you are sued. However, an insurance agent may recommend that a pool owner opts for higher liability coverage than what is standard. Homeowners might also consider purchasing an umbrella insurance policy, which provides additional liability coverage for greater financial protection.
Your insurance carrier may also require a locking fence around the pool and/or a locking safety cover to go over the water when the pool is not in use. If the pool has a diving board or slide, it will likely be considered a greater potential hazard by your insurer, who may decide to not provide coverage or charge a much higher premium.
Adding an office for a home business
Working remotely has become more common during the pandemic, so adding an office could increase your home’s value for remote workers and business owners. However, it could also increase your homeowners’ insurance rates or require you to purchase an endorsement to increase coverage for business-related assets and equipment, or a separate home business policy that provides protection against crime and worker injuries. Most homeowners policies protect equipment for home-based businesses up to about $2,500. That might not be enough for a business owner who uses specialized machinery or stores large amounts of supplies or inventory at their home. Some carriers may include a home insurance exclusion for business personal property, so be sure to talk to your agent if you have work-use items in your home and make sure you have the right level of coverage.
Additionally, homeowners insurance companies might not cover liability related to the business. You may need to bolster your existing policy or purchase an additional business policy. This is particularly true if your business is the type that creates heavier foot traffic in your home, such as piano lessons or private yoga sessions.
If you do need to bolster your business coverage, you may have a few options, depending on your insurance provider:
- Endorsement to your existing homeowners policy: This option would increase the existing limit on business property included in your homeowners policy.
- Businessowners policy: This is a separate policy designed specifically for insuring a business, and it includes an array of coverages.
- In-home business insurance: This type of insurance features the same protection you would get if you were a larger company with smaller policy limits and premiums.
Regardless of the scope of your business, you should let your agent know if you have any business risk in your home, to make sure that you are covered properly.
Expanding your space
Sometimes a home needs to be changed to accommodate an expanding family. That can mean modifying a floor plan and adding more livable square footage, like finishing a basement or attic. In other instances, a new addition may be in order. Expanding your space with new square footage will most likely increase your home insurance premium as you will need a higher level of dwelling coverage.
You might need more post-renovation insurance even if the added space is not inside your house. Adding a large finished deck could increase the value of your home, for example, and consequently, require an insurance reassessment. You may also need to consider other types of coverage for the newly built areas of your home. For example, a finished basement with new carpet, drywall and insulation may need sewer backup coverage.
Ultimately, if you expand your usable square footage indoors or outside, your insurance coverage will probably need to be altered to account for the value of the new space. With floor plan renovations, it’s best to talk to your insurance agent or insurance company to discuss if you need to alter your policy.
Upgrading your kitchen or bath
According to the 2021 Cost vs. Value Report by Remodeling Magazine, a kitchen or bathroom remodel can provide upwards of 50% in recouped value. If you make quality upgrades, like changing out laminate for granite countertops or having custom cabinets built, you may need to increase the dwelling coverage on your home insurance, which usually comes at an additional premium cost. If your home coverage is not enough to rebuild your new kitchen or bath with the same newly upgraded materials, consider increasing the dwelling coverage to align with your upgrades.
If your existing coverage is not sufficient, you might find yourself having to pay out of pocket for some of the damages to your kitchen or bath after a covered loss. Your insurance agent can use your property insurance company’s home valuation tool to determine if coverage changes are needed to ensure you have the right level of property replacement value.
Renovations that lower home insurance rates
If you are making changes that make your home safer, like updated electrical or plumbing systems, you could see lower rates after you and your insurance provider evaluate your home renovation insurance needs.
Renovating or replacing your roof
Installing a new roof may not be the most exciting home improvement, but it can save you money on your homeowners insurance. Upgrading old appliances, like the HVAC system, and replacing your roof usually means a reduction in premium because your home is better protected with new materials.
Some homeowners can earn even bigger discounts if they live in hurricane-, wind- or hail-prone states and their new roof employs special loss-mitigation measures, such as hurricane straps, waterproofing or impact-resistant shingles.
While most home policies cover roof replacements for the perils defined in your policy, some insurers use depreciation schedules based on the age of the roof to determine how much coverage you get. The newer the roof, the more coverage you are likely to have from your home insurance policy.
Upgrading your wiring or plumbing
If you upgrade your wiring or plumbing systems, especially if they are older or no longer up to current building codes, you may qualify for an insurance discount. While rewiring a house can be expensive, it could also lower the risk of fires and electrical damage, which means insurance companies could charge you less for coverage because of reduced risk. If you have knob and tube wiring (used in most homes built before 1950), for example, you could see a drastic reduction in your premium and, you might even find that more insurance carriers are willing to insure your house, which means this could be a great time to shop your coverage and compare home insurance quotes.
The same holds true for plumbing. Some types of plumbing, like lead and polybutylene, can make it difficult and expensive to find home insurance coverage. Upgrading to more modern plumbing hardware may reduce the risk for water damage and reduce your home insurance premium.
Adding security systems and sprinklers
Home security discounts are relatively common in the insurance industry, and there’s usually some variance in the savings levels. For example, if you install a local alarm system that rings at your home in the event of an intruder, you may earn a small discount. An alarm system that automatically alerts police or a central dispatch team for multiple incidents like burglary and fire would likely earn a higher discount. Sprinkler systems can also lower your premiums, as they reduce the risk of extensive fire damage.
Do I need to increase my homeowners insurance after renovating?
Whether you need to increase your homeowners insurance coverage after renovating depends on the coverage you already have in place and the value and type of the renovation. When you choose an insurance company, part of your insurance rate is established by your home’s square footage and the cost required to fix or rebuild your home based on its characteristics, such as its building materials.
Insurance companies use valuation tools to determine how much home insurance coverage you need for the structure of your house. If the renovations increase that valuation, you may want to consider increasing your coverage, too. Without increased coverage, should a disastrous event occur, any improvements you have made may not be covered.
Another thing to consider is when significant improvements are made outside of your home, like adding a high-end shed or pool. They may not be covered unless your other structures coverage in your homeowner policy is sufficient. Be sure to let your insurance company know when you have done any type of work to your home so that it can perform a post-renovation valuation to accurately determine your new coverage needs.
Additional home insurance coverage worth considering
When completing a home renovation, you should check to see if adding additional coverage is needed. While your current home insurance policy may have sufficient coverage already, you may need to make some changes while under construction:
- Builders risk insurance: This coverage protects materials you have purchased to be installed, whether it is on your property or en route to your property. If it is damaged or stolen, builders risk insurance should cover the costs of replacement.
- Vacant home insurance: If you need to live outside of your home while renovations or remodeling is being done, you may want to consider vacant home insurance. This often overlooked home improvement insurance protects your home should any damage occur while you are not actively living in it.
- Contractors insurance: This could be an important coverage if you are hiring a third party to do a renovation. Contractors insurance provides coverage for property damage, injury or damage caused by the contractors working on your home. Be sure to ask your contractor if they are insured and obtain a copy of their Certificate of Liability Insurance before signing a contract to ensure they have an adequate level of commercial general liability (GCL) coverage, according to the Triple-I. This way, you know they have the financial protection to take care of insurance issues, such as damage to your home, that could arise during construction. A typical GCL policy includes $1 million per occurrence and $2 million aggregate limit.
Cate Deventer is a writer, editor and insurance professional with over a decade of experience in the insurance industry as a licensed insurance agent.
