Home insurance premiums are based on the size, condition, and potential rebuilding costs of the property in the event of a loss. But what happens to those premiums if the homeowner decides to renovate, such as a kitchen remodel or a patio extension?
Homeowners must understand their policy limits when considering renovations or any remodeling project. Knowing your policy limits will avoid any unexpected changes to the policy’s rate.
Talk to Your Insurance Agent
The typical home insurance policy covers many home renovations; however, it is always good to check with your agent before beginning a remodeling project. Doing so will protect you from two potential liabilities:
- You will know if your current policy limitations are enough to cover any injuries someone may incur while working on the remodeling project.
- If the project significantly increases your home’s value, you will avoid being left underinsured.
For example, a home is insured for $200,000 in dwelling coverage. The homeowner does an extensive renovation to the kitchen, adding higher quality materials and increasing the home’s square footage, making the home’s rebuilding costs $250,000. If the insurance policy is not updated, the home will be underinsured. Any loss beyond the original policy limits would be the homeowner’s responsibility.
Appropriate Policy Changes for Homeowners
The following are some of the more common policy changes that could be necessary, depending on the project:
- Increase liability limits during the project. The additional coverage provides protection should a worker be injured during the project.
- Increase the amount of the property’s rebuilding insurance coverage. Provide documentation to your insurance provider with details of the renovations (with receipts) to help them calculate how much it will cost to rebuild the home.
- Increase the liability limits after completion of the project. Increasing the policy’s liability protection is a good idea when renovations include such additions as a swimming pool. An umbrella policy is also a good idea, depending on the project.
- Consider “Dwelling Under Renovation” Insurance coverage for the cost of building materials for the project. The insurance covers a loss to the materials, such as theft, before installation or during shipment.
- Consider a “Vacant Home Insurance” policy. Extensive renovations may require your family to vacate the home while the renovation project is in progress. If you need to be away for more than 60 days, vacant home insurance will protect you against theft or damage that goes unnoticed while you cannot occupy the home.
- Increase loss protection limits. Valuable items such as jewelry or art collections can be covered with an insurance endorsement or floater.
Impact of Renovations on Insurance Premiums
The impact renovation projects will have on insurance premiums will depend on the size of the project. Adding an extra room, refitting a bathroom, or installing a new kitchen can significantly affect the value of your home. An increase in the home’s value will increase your policy’s premium because the cost of rebuilding your home is now greater due to the changes.
Insurance for Building Contractors
It is essential that the contractor hired to do any work is insured. As the homeowner, you are liable for any accidents on your property during the renovation project. Ask your contractor for copies of their general and commercial business insurance policies. Reputable contractors are accustomed to supplying this information and may even offer it before you ask. We suggest avoiding contractors that fail to provide this documentation or evade the request.
When planning a renovation or remodeling project, even a small one, speak to your insurance agent about how the project may affect your homeowner’s insurance. It is also a good idea to review all your insurance coverages yearly.
ABC Dennis Insurance
ABC Dennis Insurance is an independent insurance agency established in 1997 that provides homeowners insurance to its customers. If you have not reviewed your insurance coverages this year, please call our office at (813) 949-7765 or email us.
Besides homeowners insurance, we can help with all your insurance needs. As an independent agency, we find the best insurance coverage with the most competitive rates.