How Renovations and Home Improvements Affect Home Insurance
What Are the Advantages of Home Improvements?
Did you make improvements to your home, or are you considering a renovation project? Take a few minutes to review your homeowners insurance policy before you begin any home renovation projects. A remodeling project can add liability while the project is in the work. Renovations can also increase the value of your home, as well as the cost of repairs if your home suffers damage. The new value of your home will also change your home insurance coverage.
Speak with your local insurance agent about home renovation insurance before you begin any home improvement projects. They may suggest boosting your policy limits or adding additional coverages that can protect your home renovation projects. First, access your existing policy online, if you can, to see what your coverage limits are before you do any work.
Homeowners insurance may be the last thing on your mind during a home improvement project; however, it's essential to get enough home renovation insurance to protect yourself and your home. Additionally, increasing your home insurance coverage will protect the new value of the house, not the former one. Should you need to rebuilt your home, you'll want the correct value for reimbursement.
An insurance agent should make changes on your home insurance right away or show you how to access your account online or via an app in order to upload receipts.
Does Homeowners Insurance Cover Renovations?
According to the Insurance Information Institute, standard homeowners insurance policies won't cover the cost of your home improvement project. They cover the cost to repair or replace your home if a covered peril damages it. These dangers include lightning, hail, hurricanes, and other disasters.
Homeowners insurance also covers detached structures on your structure on your property. These include garages, sheds, and gazebos.
Homeowners insurance also provides liability insurance in case someone is harmed on your property. However, when it comes to property coverage, home insurance only covers sudden or immediate disasters that result in a loss. It doesn't cover the cost of home renovations, home remodeling or any type of home improvement project.
Am I Covered During a Renovation?
Consider buying appropriate add-ons to your home renovation insurance coverage to cover the cost of your home during the project in case something goes wrong. For instance, a contractor could make a mistake that causes your home to collapse. A worker can have an accident on your property that can cause them to their hospital. A thief can also steal your home improvement supplies.
Adding home improvement renovation options to your homeowners insurance policy can protect your home and wallet until the contractors complete your project.
Several renovation coverages you can add onto your homeowners include:
- Dwelling Under Renovation
- Vacation Home Insurance
- Contractors Insurance
In upcoming sections, you'll learn how each coverage will protect your renovation project.
What Does Home Renovation Insurance Cover?
Does insurance cover renovation accidents and pitfalls? Yes, home renovation insurance coverage can prevent major financial setbacks if something goes wrong during the construction phase of your home improvements.
If you have upcoming renovations or remodeling projects at your home, consider adding Dwelling Under Renovation insurance to your homeowners policy. Dwelling Under Renovation coverage includes construction material coverage and foundation collapse coverage options.
Construction material coverage covers 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, this coverage will protect you.
Foundation collapse insurance covers your home if basement walls collapse due to hydrostatic pressure (water pressure). It is a more common problem than you would think.
What Is Vacant Home Insurance and Why Do I Need It?
Some homeowners insurance policies won't cover your home if it's vacant for more than 60 days. Are you going to be living someplace else for more than two months while your home is undergoing renovations? Vacant Home Insurance coverage will protect your home from named perils if you live in a hotel while contractors renovate your residence.
Sometimes, vandals can damage homes when they are empty. Additionally, unforeseen incidents can damage your property, and some homeowners may not notice these issues until they move in. Vacant home insurance coverage would take care of those overseen problems. It will protect your home against losses but not theft. This policy won't pay for any valuable appliances or materials stolen during renovations. Your homeowners insurance will only cover theft if someone lived at the residence at the time.
Vacant Home Insurance costs more than a standard home insurance policy.
What Is Contractors Insurance?
Renovation contractor insurance, or contractors insurance, 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 your coverage 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 has insurance. Make sure they have liability and workers' compensation coverages before you begin any work. Also, ask subcontractors for the same information. Yes, even the plumber (especially the plumber).
What Should I Know if I'm Doing My 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 on your property. Make sure you have adequate coverage.
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 when they get hurt on your property. It will take care of their healthcare expenses if an accident occurs on your property. It will also reduce the chances of a lawsuit judgment that can cost you your home.
When completing renovations, snap before and after pictures of your home. Take pictures of every phase of the project. It will help you document the work and provide proof of the rebuilding costs to your insurance company if they need it. These are critical steps to take no matter the size or the 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's 10 percent or more or you must live outside the home for any length of time, you must report it to your insurer.
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 rather than the usual one ($500 or $1,000). Remember, 5% of the value of your home is a lot more than the typical deductible.
What's Builder's Risk Insurance?
If you can't add coverage to your homeowners insurance policy for a project, you can buy a builder's 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 homeowners insurance coverage. It 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 carries higher risks, too, such as on-site injuries and damages.
Before getting quoted, get the property inspected. It will provide you with an accurate estimate of how much work 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 or 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 an HO-8 Policy?
HO-8 policies are renovation insurance coverage 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 in good condition and has residents living in them during the construction period.
What Is a FAIR Plan?
If you can't get anyone to insure you this is the plan you need. If you're buying a home that you're renovating over a long period 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.
To get a home insurance quote and see how much you can save each month, enter your zip code below to get started. SmartFinancial's app will let you see if another insurance company can beat what you're paying now and possibly with better coverage. Note, you may need a business policy if you run a business out of your home.