Does Homeowners Insurance Cover Renovations?

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

In general, standard homeowners insurance policies cover renovations. Still, it’s a good idea to check with your agent before the project gets underway to make sure you will be adequately covered during and after the renovation. There are two key reasons why this is important:

1. A renovation that increases the home’s rebuilding costs could leave you underinsured.
2. Your existing liability limits may not be sufficient if someone gets hurt during the renovation.

Here’s an example. Assume your home has $200,000 in dwelling coverage. That’s the amount your insurance company would pay toward rebuilding the house for a covered loss—after your deductible, of course. Now, say you do an extensive renovation to your kitchen that uses higher quality materials and adds square footage to your home. With the kitchen update, your rebuilding costs are now $240,000.

If you increase your coverage limits based on the new rebuilding costs, you would be adequately covered if something bad were to happen. However, if you don’t update your policy, you could end up woefully underinsured. In this case, your policy would pay only $200,000 of the $240,000 rebuilding costs, and the rest would have to come out of your pocket.

Which Policy Changes Should I Make?

Before construction gets underway, ask your home insurance agent if you should update your existing policy. Depending on the details of your renovation, your agent may recommend that you:

• Increase the amount of insurance you have to rebuild your home. The Insurance Information Institute (III) advises that you should be prepared to forward your records and receipts to your insurance company so they can accurately assess your insurance needs.
• Increase your liability coverage limits during the renovation. Liability coverage helps protect you if someone who doesn’t live with you is injured while helping out with the renovation. This is especially important for DIY jobs (contractors should have their own insurance). The III recommends increasing the amount of no-fault medical protection on your policy. That way, if someone does get injured, they can submit their medical bills directly to your insurance company. The III says this can lower your chances of getting sued.
• Increase your liability coverage limits after the renovation. If your renovation includes an “attractive nuisance”—such as adding a swimming pool or hot tub—consider increasing your liability coverage permanently. The III suggests that an excess or umbrella policy is a cost-effective way to increase your overall liability protection.
• Increase your coverage for personal possessions. If you bought any expensive items as part of the renovation, you might need to bump up your personal property coverage limits. Say you build an addition to exhibit a collection of art or comic books—and then add to the collection. Any new, valuable items might need additional coverage in the form of a floater or endorsement. 
• Add “dwelling under renovation” coverage. Dwelling under renovation insurance protects the building materials at—or en route to—your property. After all, it’s not unheard of for materials to get damaged at or stolen from job sites. The insurance also provides coverage for foundation collapse.
• Add vacant home insurance. Depending on the renovation, you might live elsewhere while your house is under construction. If you’ll be away for more than 60 days, considering buying vacant home insurance coverage. That way, if damage occurs and goes unnoticed for awhile, you will still be protected.

Should My Building Contractor Have Insurance?

According to the III, you should ask to see a copy of your contractor’s insurance policies, including a commercial business/general liability policy, as well as workers’ compensation (don’t be afraid to snap a quick photo of these docs for your records).

Anyone you hire to work on your renovation must be adequately insured; otherwise, they could sue you if they get hurt on the job. If a prospective contractor can’t (or won’t) verify their insurance coverage, it’s best to find one that will.

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

A home renovation could cause your home insurance premiums to rise, but it doesn’t always.

Projects that increase the value of your home may lead to higher premiums. If you add a room to your house, for example—whether it’s a new bedroom, second owner’s suite, or family room—that increased living space will likely result in a bigger insurance bill. That’s because the added square footage bumps up the home’s rebuilding costs.

Similarly, renovations that install higher-end materials, such as marble in the bathroom or commercial-grade appliances in the kitchen, also increase your home’s rebuilding costs—and, therefore, your premiums. 

While many home renovations raise your premiums, certain improvements could have the opposite effect. Say you replace your roof with sturdier materials, or you install shatter-resistant windows and storm shutters. In these situations, your premiums could actually decrease because your home will be more resistant to storm damage. Likewise, you might get a discount if you install safety devices in the house (e.g., smoke detectors, dead-bolt locks, a burglar alarm) or if you update the heating, plumbing, or electrical systems.

The Bottom Line

No matter which type of renovations you make, your existing coverage limits may be too low to match your home’s post-reno value and liability. Always talk to your insurance agent before construction starts to find out if your existing policy will provide enough coverage during and after the renovation. If not, update your policy before any work begins. And if the renovation turns into a bigger project along the way—for example, you decide to add that hot tub, after all—keep your agent updated.