When you’re ready to renovate your home, there is a lot to think about—from planning out the work to be done, to selecting contractors and materials, to developing a budget, and much more. In the midst of this all-consuming process, you might inadvertently overlook another essential element: your insurance.
A home renovation can impact your insurance needs, but that may not be top of mind when you’re about to embark on a project. Understanding how the work might impact you from an insurance perspective is essential to reducing your risk and staying adequately covered.
The Insurance Implications for Renovations Are Changing
Five or 10 years ago, if you decided to update your kitchen or put on an addition, you might not have paid much attention to the insurance implications. Today, the situation is entirely different.
High inflation, construction material supply constraints, and labor shortages have all combined to make home renovation projects more expensive and complicated. The larger the project, the greater the impact of these challenges. With more at stake, it’s more important than ever to ensure you are adequately covered—both during the project and after it’s completed.
There are two types of insurance your home renovation might affect: your homeowner’s coverage and your umbrella liability policy.
Keeping Up with Your Home’s Value is Key
A home renovation is likely to increase your home’s value, and that might spur a need to update your homeowner’s policy. Consider the impact of a large-scale project like a two-story addition, custom kitchen upgrade, new stand-alone garage, or full basement remodel. Big-ticket projects like these can significantly increase the value of your home, along with the cost to replace it in the worst-case scenario.
Even if your homeowner’s insurance includes guaranteed replacement cost coverage—which means the insurer is required to cover the full replacement cost, no matter what it is—it’s important that the insurer knows the home value has gone up as a result of a renovation. The premium they charge for guaranteed replacement cost coverage is based on the value of your home; if that figure increases, they’ll want to adjust the premium accordingly.
In terms of being adequately protected after you renovate your home, most insurance carriers will cap your renovation coverage to a certain percentage of your home’s pre-renovation value. For example, some insurers that cover modest-value homes might not offer guaranteed replacement cost coverage but will cover claims up to 125 percent of the home’s value.
As a general rule, if the cost of your renovation project is estimated at more than 5-10 percent of your home’s current value, it’s best to contact your insurance advisor before starting the work to let them know what you’re undertaking and ensure you have sufficient coverage. Once the project is completed, the insurer will do a post-project inspection to calculate the new value.
You Might Need a Builder’s Risk Policy
A bigger issue to consider is that the project’s size and scope might necessitate obtaining a builder’s risk policy—which you’ll want to know before work begins.
Builder’s risk policies are often equated with new construction, but they also come into play when a homeowner undertakes a major renovation. If you’re putting on an addition, moving load-bearing walls, adding square footage, or raising the home’s elevation, it’s possible your current homeowner’s insurer won’t be willing to stay on and you will need a builder’s risk policy instead.
This is another critical reason to keep your insurance advisor informed when you’re planning a renovation. If you need to secure a different type of coverage, you’ll want to know well before the project begins. (Compared to a homeowner’s policy, a builder’s risk policy is more complex to underwrite, requiring more documentation and more lead time.)
Once your project is completed, your insurance advisor can provide options for securing homeowner’s insurance based on the new replacement value. Your chosen carrier will likely perform an on-site inspection to assess the value so they can arrive at an accurate premium.
Reducing Liability Risk is Vital
Whenever contractors are working in your home or on your property, there is liability risk. You will want to be sure you’re adequately covered if a general contractor, subcontractor, or inspector is injured on your property.
Your standard homeowner’s policy includes limited liability coverage, but in the event your carrier requires you to obtain builder’s risk coverage instead, you’ll need to secure a separate liability policy to cover incidents that occur during the renovation work. Proper liability coverage is crucial for successful families, so if you’re undertaking a major home renovation and you don’t already have an umbrella liability policy, now is the time to look into this coverage.
Some Renovations Might Reduce Your Premium
While many home renovation projects will raise your home’s value and likely your insurance premium, some projects can reduce your costs by reducing your risk.
For example, if you live in an area prone to hurricanes and tropical storms (like Florida) and you install a wind-resistant roof, you might qualify for a homeowner’s insurance premium reduction. Other renovation projects that might reduce your insurance costs include sophisticated security systems, low temperature monitoring systems, and leak detection systems with automatic water shutoff features.
Generally speaking, if a home renovation project will improve your safety or security, there is a good chance you will see a premium credit. That’s another reason to keep your insurance advisor and carrier informed of any updates you make to your home.
What to Do Before You Begin Renovations
Steps like these can help reduce your risk and ensure you have sufficient coverage during a renovation project and after it is completed:
- Ensure any contractor on the job is insured and be sure you are listed on their insurance policy for the project’s duration.
- Provide your insurance advisor with a copy of your renovation contracts so they can be sure it’s clear where the burden of risk lies during construction.
- Notify your insurance advisor well ahead of your project start date so they can determine whether you can stay with your current homeowner’s policy or will need a builder’s risk policy.
How B. F. Saul Insurance Can Help
The experts at B. F. Saul Insurance have been helping homeowners protect their properties through major renovations for decades. We apply our deep knowledge and expertise to ensure our clients are covered properly, whether through a standard homeowner’s policy or builder’s risk policy. And we leverage our strong relationships with insurance carriers across the industry to identify the best coverage for your needs and obtain the greatest degree of flexibility possible. If a claim arises, our team will serve as your advocate throughout the process to ensure you receive the claim payout you deserve.
If you’re planning a home renovation, contact the experts at B. F. Saul Insurance to discuss your project and ensure you have the right protection in place.
In order to bring the best content to our readers, we feature various writers from within B.F. Saul who have advanced expertise in key, niche areas of insurance. This is an article by featured writer, Ryan Byrd, B.F. Saul Insurance's Account Manager, Private Client Division.