Does Homeowners Insurance Cover Renovations?

The amount of homeowners insurance you purchase is determined by factors such as the size and condition of your home, as well as the cost of rebuilding it if disaster strikes. But what if those variables change, for example, because you build a deck or renovate the kitchen? Is renovations covered by homeowners insurance? If you're planning a home remodel or renovation, here's what you need to know about insurance coverage.

Should I Notify My Home Insurance Agent If I Renovate My Home?

Renovations are typically covered by standard homeowners insurance policies. Still, it's a good idea to check with your insurance agent before the project begins to ensure that you'll be adequately covered during and after the renovation. There are two primary reasons for this:

1. A renovation that raises the cost of rebuilding the home may leave you underinsured.
2. If someone is injured during the renovation, your current liability limits may not be sufficient.

Here's an illustration. Assume your home is insured for $200,000 in total. After your deductible, that is the amount your insurance company would pay toward rebuilding your home in the event of a covered loss. Assume you renovate your kitchen extensively, using higher-quality materials and adding square footage to your home. Your rebuilding costs have increased to $240,000 due to the kitchen upgrade.

If you increase your coverage limits to reflect the new rebuilding costs, you will be adequately covered if something bad happens. However, if you do not update your policy, you may find yourself severely underinsured. In this case, your policy would cover only $200,000 of the $240,000 rebuilding costs, leaving you to cover the remainder.

Which Policy Changes Should I Make?

Before you begin construction, check with your home insurance agent to see if you need to update your current policy. Depending on the specifics of your renovation, your agent may advise you to:

• Increase the amount of insurance you have to rebuild your home. According to the Insurance Information Institute (III), you should be ready to send your records and receipts to your insurance company so that they can accurately assess your insurance needs.
• During the renovation, increase your liability coverage limits. Liability insurance protects you in the event that someone who does not live with you is injured while assisting with the renovation. This is especially important for do-it-yourself projects (contractors should have their own insurance). The III advises you to increase the amount of no-fault medical coverage on your policy. If someone is injured, they can submit their medical bills to your insurance company directly. According to the III, this can reduce your chances of being sued.
• After the renovation, increase your liability coverage limits. Consider increasing your liability coverage permanently if your renovation includes an "attractive nuisance," such as adding a swimming pool or hot tub. According to the III, an excess or umbrella policy is a low-cost way to increase your overall liability protection.
• Increase your personal property coverage. If you purchased any expensive items as part of the renovation, your personal property coverage limits may need to be increased. Assume you build an addition to display a collection of art or comic books—and then add to it. Any new or valuable items may require supplemental coverage in the form of a floater or endorsement.
• Include coverage for "dwellings under renovation." Dwelling renovation insurance protects the building materials on your property or in transit to your property. After all, it's not uncommon for materials to be damaged or stolen on construction sites. Foundation collapse is also covered by the insurance.
• Add vacant home insurance. Depending on the extent of the renovation, you may have to relocate while your home is being built. Consider purchasing vacant home insurance if you will be gone for more than 60 days. As a result, even if damage occurs and goes unnoticed for a period of time, you will still be protected.

Should My Building Contractor Have Insurance?

You should request a copy of your contractor's insurance policies, including a commercial business/general liability policy and workers' compensation (don't be afraid to take a quick photo of these docs for your records).

Anyone you hire to work on your renovation must be properly insured, or they may sue you if they are injured on the job. If a prospective contractor cannot (or will not) verify their insurance coverage, find another.

Will My Insurance Premiums Go Up If I Renovate My Home?

Your home insurance premiums may rise as a result of a home renovation, but this is not always the case.

Projects that increase the value of your home may result in higher insurance rates. If you add a room to your home, such as a new bedroom, second owner's suite, or family room, the increased living space will almost certainly result in a higher insurance bill. This is because the additional square footage raises the cost of rebuilding the home.

Similarly, renovations that include higher-end materials, such as marble in the bathroom or commercial-grade appliances in the kitchen, raise the rebuilding costs of your home—and thus your insurance premiums.

While many home improvements raise your premiums, others may have the opposite effect. Assume you replace your roof with stronger materials or put in shatter-resistant windows and storm shutters. Your premiums may actually decrease in these cases because your home will be more resistant to storm damage. Similarly, if you install safety devices (such as smoke detectors, deadbolt locks, or a burglar alarm) or update the heating, plumbing, or electrical systems, you may be eligible for a discount.

The Bottom Line

Whatever type of renovations you do, your current coverage limits may be insufficient to match your home's post-reno value and liability. Always consult with your insurance agent before beginning construction to determine whether your current policy will provide adequate coverage during and after the renovation. If not, update your policy before starting any work. Keep your agent updated if the renovation becomes a larger project along the way—for example, if you decide to add that hot tub after all.