Does Homeowners Insurance Cover Renovations?

What Renovations Are Covered by Homeowners Insurance?

The "dwelling coverage" part of your homeowners policy pays to repair or rebuild if a covered risk destroys or damages your home. However, homeowners insurance doesn't pay to remodel your home. Here are two examples of what's covered and what isn't:

• A pipe bursts and ruins your kitchen floor: Home insurance covers replacing the floor.
• You decide your kitchen floor is outdated and want to redo it: Homeowners insurance does not cover replacing the floor.

In general, homeowners insurance pays to replace or rebuild a damaged home with comparable materials. When a water pipe destroys your peel-and-stick tile kitchen floor, your insurance company will pay to replace it. However, if you want high-end hardwood, you'll need to pay for that upgrade yourself.

What happens if a contractor falls off a ladder during the remodel? The liability coverage included in standard homeowners insurance pays medical costs and legal expenses when a visitor is injured on your property. Whether you're hiring contractors or having friends and family help with your renovations, you'll probably have lots of visitors. You may want to temporarily increase your homeowners liability coverage during the project to be sure you're covered.

Once remodeling is complete, your home insurance covers damages to the renovated areas—assuming you told your insurance company about the renovations. Your insurance carrier will need to know how renovations may affect the cost of rebuilding or repair. (More on that below.)

Use Insured Contractors to Limit Risk

Homeowners insurance doesn't cover you if a contractor does careless work or uses poor-quality materials. Using licensed and insured contractors can protect you from this risk. Before hiring a contractor, you should always:

1. Verify their license with your state or county government.
2. Ask for proof of insurance, including both commercial business or general liability and workers' compensation insurance. Without this coverage, an injured worker may sue you. If the contractor uses independent contractors rather than employees, make sure those contractors have their own coverage.
3. Check with your state's Consumer Protection Office and search online for complaints about the contractor.
4. Get a written contract with the contractor's address, contact information and license number that states all details of the project.

Do You Need to Tell Your Homeowners Insurance Provider About Renovations?

You don't have to tell your homeowners insurance company about minor renovations, such as painting a room or replacing a countertop. However, you should inform them of major renovations, such as adding a room to your home or completely remodeling your kitchen. These renovations increase the value of your home, and your current policy might not provide enough coverage should you need to cover damages in the future.

The Insurance Information Institute recommends contacting your insurance company before your project starts and increasing coverage to reflect the upcoming changes to your home. The insurer can also confirm whether damage to your home caused during the remodel—such as a fire due to incorrectly installed wiring—will be covered.

In addition to adjusting your coverage, you may want to get some homeowners insurance extras such as personal property coverage or builders risk coverage before the remodeling project starts.

• Personal property: Having strangers in your home can increase the risk of theft. Make sure your home inventory is up to date and that you have enough personal property coverage.
• Construction risk: For a big project, consider getting dwelling under construction or builders risk coverage. This insurance typically covers damage to or theft of construction materials and supplies (such as wood or flooring) either on site, in storage or in transit. It can also cover vandalism, theft and weather damage to your home related to construction (for example, if a rainstorm hits before your roof is finished). This coverage may be available as an endorsement to your homeowners insurance or a separate policy.
• Vacancy: Will your home be vacant for an extended time during the remodel? Because damage to or theft from unoccupied homes can go unnoticed, some insurers drop coverage if a house is vacant for over 30 days. Contact your insurer to make sure your home will still be covered by insurance or if you need to buy vacant home coverage.

Discuss the specifics of your renovation project with your insurance agent. They can advise you how best to adjust your homeowners insurance coverage to protect your home.

How Do Renovations Affect Your Homeowners Insurance Cost?

Remodeling that adds either value or risk to your home means your home will cost more to insure. Renovations that may cause your insurance to increase include:

• Change in floor plan: Adding square footage boosts your insurance premiums because a bigger home costs more to rebuild. Expect a new bedroom, bathroom or family room to bump up your rates.
• High-end materials: Upgrading your 1980s bathroom to one with marble counters, heated floors and a spa shower means higher insurance costs. Replacing those pricey materials will cost more than replacing with builder-grade supplies.
• Swimming pools, spas or jacuzzis: Water features can pose a risk to visitors or passersby. When adding a pool, the Insurance Information Institute advises increasing your home insurance liability limits to between $300,000 and $500,000 or more, depending on your assets. You may also want umbrella insurance coverage for additional protection. Before starting your pool project, check to see if your insurance company requires fencing, alarms, pool covers or other safety features in order to insure it.

The good news: Some home renovations may lower your premium if they fix problems that could lead to insurance claims. In general, older homes cost more to insure, so revamping your home with new materials and systems could reduce your insurance costs.

• New windows: Better-quality windows reduce the chance of leaks. Storm-safe windows with features like roll-down shutters and impact-resistant glass can protect your home in hurricane areas. Both changes can mean lower rates.
• New electrical system: Knob-and-tube or aluminum wiring, often found in older homes, is a fire risk. Upgrading your electrical system to a modern, safer one could shave dollars off your premiums.
• New plumbing: Updating old pipes and plumbing lowers your risk of water damage, especially if you install a water shutoff device that turns off the water supply when leaks are detected.
• New HVAC system: Older heaters may pose a risk of fire. Upgrading to modern HVAC could lower your premiums.
• New roof: A sturdy new roof is less likely to leak or be damaged by falling tree limbs. Some roofing materials are also fire-resistant or protect against impact from hail. You may also get an insurance discount simply for having a newer roof.