Most homeowners want to upgrade their home sooner or later. However, many fail to consider the impact renovations could have on their insurance.
The National Association of Insurance Commissioners (NAIC) recommends an insurance review whenever you’re considering or have done significant work to your home. Here’s why.
Renovations Affect Home Value
Renovations usually increase your home’s value and your homeowners insurance should reflect them. Otherwise, you will be underinsured and your policy won’t provide sufficient coverage for you to rebuild if you experience a total loss.
The value of your home may not increase considerably for some projects, but it will definitely change significantly if you develop your basement, add onto your home, replace the roof, redo your bathroom or kitchen, or add costly custom features, inside or out.
Insurance reviews realign your coverage with your needs, which continually change.
You Must Meet Coverage Thresholds
No one wants to pay more for insurance, but if you do not tell your insurance company you risk claim denial. Most policies require homeowners to insure at least 80 percent of its replacement cost before they’ll honor claims. If your renovations increased your home’s value considerably, this may not be the case.
You May Need Additional Coverage
If you’re planning on living elsewhere while your home’s renovated, definitely call us first. Many homeowners insurance policies don’t cover homes left vacant for more than 60 days, because they’re higher risk.
Luckily, you can usually have us add an endorsement to your policy. In some cases, you may need to increase your policy limits to cover building materials or buy builder’s risk insurance if your contractor doesn’t have complete coverage. At the very least, they should provide proof of workers’ compensation and contractor’s liability insurance.
Extended replacement cost coverage is another option if you’re unsure how your renovation might affect home value. It provides between 25% and 50% additional protection if a total loss pushes you over your coverage limit.
If you, a friend, or a family member will help out with renovations, you may want to buy a personal liability umbrella policy for additional protection against injury costs beyond your homeowners insurance policy.
Some Renovations Increase Risk
If you’re considering a pool it may increase your property’s value, but it will also increase your liability risk. Your agent will need to check your policy to ensure you have sufficient coverage and whether you must comply with certain safety measures.
Insurers consider a swimming pool and “attractive nuisance,” because it draws others to it even when you’re not at home. Should someone injure themselves on your property, you could be held liable for their medical bills, court costs, and a settlement.
You May Qualify for Discounts
Many home upgrades can lead to insurance discounts. As an example, most insurers offer discounts for higher quality roofs, because it reduces claims for damage caused by wind, hail, and water. Same thing applies when you update your plumbing and electrical systems.
Call us beforehand (or as soon as possible) when work commences to ensure you have the coverage you need throughout the project. An insurance review only takes a few minutes and could save you a mountain of headaches.