How Renovations and Home Improvements Affect Home Insurance

Fran
Fran Majidi
July 10, 2019

Did you make improvements to your home or are you considering renovations? If so, chances are that homeowners insurance is the last thing on your mind. However, it’s important for you to think about updating your homeowners insurance policy so that you will remain protected for the new value of the house, not the former one. You never want to wait adjust your home value after a disaster strikes. It’s important to remember that when you renovate your home you’re probably increasing the cost of future repairs too. If you have yet to make renovations, you’d be wise to add dwelling under renovation insurance to your homeowners policy to prevent major financial setbacks you may otherwise face if something goes terribly wrong in the construction phase of your home improvements. 

What Is Dwelling Under Renovation Coverage?

Often called home renovation insurance, this is the insurance you buy before building your home. It often includes construction material coverage and foundation collapse. Construction material coverage will cover your building materials while they are on your property, in storage or on the way to your home. If these materials are destroyed, damaged or stolen, you will be protected with this type of coverage. Foundation collapse insurance guards against basement walls from collapsing due to water pressure, a more common problem than you’d think.

What Is Vacant Home Insurance and Why Would I Need It?

If you live outside of your home while it’s being renovated, your home should be protected from new perils. Often homes become damaged and the damage is not noticed until move-in. This coverage would take care of those overseen problems.

What Is Contractors Insurance?

Often called renovation contractor insurance, this is a certificate of insurance that your contractor should have. Keep a copy of this proof of insurance with your records. If subcontractors are also working on your house, make sure they have this coverage too. In addition, your contractor should have liability, property and workers compensation insurance. 

Should I Notify My Insurance Agent Before Renovations?

Absolutely. You run the risk of going over limits if they are not high enough to cover the increase in the home’s value if the renovation did indeed increase its value. If you don’t communicate with the insurance agency and your home gets damaged, you may not have sufficient coverage. The phone call to your agent may end up being the wisest thing you ever did.

How Should I Change My Home Insurance Policy After a Renovation?

Well, you should begin making changes well before construction begins (see above). If there’s construction on your property, the chances of someone getting injured on your property increase. You can avoid paying for a potentially expensive lawsuit if your contractor is properly insured. Make sure they have liability and workers’ compensation coverages before you begin any work. Also, you should ask subcontractors for the same information. Yes, even the plumber (especially the plumber).

What Should I Know if I’m Doing My Own Renovations?

Your property will still be a potential hazard to visitors or family members helping out. The neighbor stopping by to see how things are going can fall and get hurt. You’ll still be liable for injuries and losses (lawsuits) so increasing your liability coverage is always a good idea. With this coverage, medical bills from an injured third party would be submitted to your insurance company and taken care of so that the likelihood of the situation turning into a lawsuit are greatly lowered.

It’s also important to keep photos of your home before, during and after, focusing on the projects you’re working on so you have documentation of the work and the reasons behind the rebuilding cost if there ever is one.

These are important steps to take no matter the size or cost of the improvement.

How Do I Know if the Improvements I’m Making Need to Be Reported?

To be on the safe side, speak with your agent even if you think your home improvement project is small. In general, if you are constructing an addition to the property and have a budget that is 10 percent or more and/or you have to be living outside the home for any length of time, you must report it. Otherwise, if there’s any damage to the property you will not be paid out at replacement cost but at replacement cost less depreciation, which is much less. You’ll also be subject to a 5% special construction deductible as opposed to the usual one ($500, or $1,000). Remember, 5% of your home’s value is a lot more than the usual deductible.

What’s Builders Risk Insurance?

If it’s not possible to add coverage to a homeowners policy for a project or additions, you can buy a builders risk insurance policy instead. You can buy this kind of insurance from an insurance company specializing in construction insurance. This type of insurance usually rises as the construction comes to a close. 

How Do I Insure a Fixer-Upper?

Insuring a home works this way: you buy a home, get home insurance quotes and choose an insurer. Your first year’s premiums are due at closing and your payments roll into escrow. No, that doesn’t mean you can’t change your home insurance. This is simply the way it’s rolled out. With a fixer-upper buying insurance is a bit more challenging because it’s probably a higher risk investment than a home that’s move-in ready. The process of fixing up a home carry higher risks too, such as on-site injuries and damages. Before getting quoted, get the property inspected so you have an accurate estimate of how much work there needs to be done. Chances are that if the fixes are not extensive and you’ll be able to move in within 30 days of closing, you can get a standard or conventional home insurance policy. If your home’s fixes require that you live outside the home for a few months, you’ll probably need a higher risk insurance plan.

You may have to buy a builder’s risk insurance, the most common type of new construction homeowners insurance. For more on Builder’s Risk insurance see above.

What’s Vacant Dwelling Insurance?

If your home is empty of inhabitants while it’s being renovated this is the policy you’d need. You will be protected against losses but not theft. If you’ll have valuable appliances and materials, however, this type of policy will not suffice if you are not living in the home or guarding it somehow. This will cost more than a standard home insurance policy.

What’s an HO-8 Policy?

This type of insurance is for older homes. However, unlike other HO policies, it won’t cover replacement costs of your home if it’s a total loss. An HO-8 policy is for homes that are in good condition and are lived in during construction.

What Is a FAIR Plan?

If you can’t get anyone to insure you this is the plan you need. Basically, if you’re buying a home that you’re renovating over a long period of time or using cash for repairs in increments of time, most insurers will refuse you as a consistently high-risk client. FAIR plans meet only the basic insurance requirements but they are better than having no insurance.

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