How Renovations Impact Your Existing Homeowner’s Insurance Coverage

Learn what you should know about your homeowner’s insurance coverage before, during, and after major renovations.

Key takeaways:

• Major home renovations can increase your property’s value and risk profile, making it crucial to update your homeowner’s insurance to ensure adequate coverage.
• Adding features like a pool or home gym increases liability risk, necessitating additional liability coverage to protect against potential accidents and lawsuits.
• Inform your insurance provider about renovation plans and provide detailed information to adjust coverage limits and avoid gaps in protection.

While it’s certainly important to focus on the aesthetic and functionality of home renovations, it’s easy to overlook how these changes impact your existing homeowner’s insurance coverage.

Major renovations can increase the value of your home and alter its risk profile, which can significantly affect your current insurance policy. 

But in some cases, failure to update your policy could result in insufficient coverage or even a complete void of your existing insurance. 

That’s why, in this article, we’ll dive into how different types of renovations can affect your coverage, the importance of updating your policy, and steps you can take to mitigate risks.

The Impact of Major Renovations on Your Insurance Policy

One of the most significant ways renovations can affect your homeowner’s insurance is through the expansion of your home’s square footage. 

Whether you’re adding an extra room, building a new floor, or extending your living space with a sunroom, these changes increase the overall value of your property. This elevated value means that your existing coverage limits may no longer be sufficient to cover the cost of rebuilding your home in the event of a total loss.

Moreover, these structural changes can also increase the risk associated with your home. For instance, a larger home may present more potential for damage during natural disasters. 

If your insurance policy isn’t updated to reflect these changes, you may find yourself underinsured, which could be financially devastating in the event of a claim.

Adding High-Liability Features

Renovations that include the installation of high-liability features, such as a swimming pool, hot tub, or even a home gym, can drastically change your insurance needs. 

These features, while beneficial for lifestyle enhancement, also increase the likelihood of accidents occurring on your property. 

As a result, they elevate your liability risk. To adequately protect yourself, you’ll likely need to purchase additional liability coverage. Without this, you could be exposed to significant financial risk if someone is injured on your property and sues you for damages.

Upgrading Electrical, Plumbing, and HVAC Systems

Upgrades to your home’s electrical, plumbing, or HVAC systems can improve efficiency and safety, but they also alter the risk profile of your home. 

For example, modern electrical systems are less likely to cause fires than older ones and are thus likely to potentially lower your insurance premiums. 

However, if the upgrades involve complex systems or new technologies, they could introduce new risks that your insurer will need to consider. It’s crucial to notify your insurance company about these changes so they can reassess your policy and ensure you have adequate coverage beforehand.

Kitchen Remodels and Luxury Upgrades

Kitchen remodels are among the most popular home improvement projects. While they can significantly increase your home’s market value, they can also elevate the value of your personal property. 

High-end appliances, custom cabinetry, and luxury fixtures can exceed the personal property coverage limits of your existing policy. To avoid being underinsured, it’s essential to update your policy to reflect the increased value of your belongings.

When Small-Scale Renovations Don’t Require Policy Changes

Not all renovations will necessitate changes to your homeowner’s insurance. Small-scale updates, such as replacing carpets, repainting walls, or minor landscaping, typically don’t affect the overall value of your home or its risk profile. 

Similarly, routine maintenance tasks, like replacing old windows or repairing a leaky roof, generally don’t require adjustments to your policy. However, it’s always a good idea to document these changes and keep records in case they are needed for future reference.

The Importance of Updating Your Homeowner’s Insurance Policy

Before embarking on any major home remodeling project, it’s crucial to assess the potential impact on your homeowner’s insurance. 

Start by considering the scope of the work: Are you adding square footage, installing a new roof, or upgrading key systems? Each of these changes can significantly impact your home’s value and, consequently, your insurance needs in different ways.

It’s equally important to inform your insurer about your renovation plans before you begin. This allows them to provide guidance on necessary coverage adjustments and helps ensure that your policy remains valid throughout the renovation process. 

Failing to update your insurer could result in gaps in coverage, leaving you vulnerable in the event of a loss.

After the renovation is complete, reassess your home’s replacement cost. This is the amount it would take to rebuild your home from scratch, including labor and materials. 

Given that home construction costs can fluctuate, especially after significant upgrades, you may need to increase your policy limits. Your insurance agent can assist with this assessment, ensuring that your home is fully protected. 

It’s also wise to document the renovation process. Keep receipts, contracts, and before-and-after photos handy. This documentation can be invaluable if you need to file a claim related to the renovation work.

Notifying Your Insurance Provider: Key Information to Share

Clear communication with your insurance provider is essential before, during, and after any renovations. 

You should inform them that renovations are taking place and provide detailed information, including timelines, the general scope of work, and expected completion dates. 

This information will help your provider adjust your coverage limits and add specific endorsements as needed.

Be prepared to share the following with your insurer:

• Description of the Work: Offer a detailed summary of what the renovation project entails. This helps your insurer assess how the changes will impact your coverage needs.

• Permits: If your renovation requires any permits, provide copies to your insurance provider. This ensures that all work is compliant with local regulations, which can affect your coverage.

• Cost Estimates: An estimate of the total cost of your home renovation will help your insurer determine how much additional coverage you may need.

• Contractor Agreements: Share with your insurance company any contracts or agreements you have with the contractor doing the work. This is particularly important if the contractor is responsible for securing certain types of insurance like builder’s risk insurance.

• Timeline: A clear timeline of when the work will start and finish helps your insurer anticipate changes in risk and adjust your policy accordingly.

• Photos: Provide before-and-after photos of the renovation to document the changes. This can be critical in the event of a claim.

Failing to notify your insurer about renovations can have serious consequences. If you file a claim related to work you didn’t report, your insurer might deny the claim or consider it a breach of contract, leaving you without coverage when you need it most.

Builder’s Risk Insurance

In some cases, your existing homeowner’s insurance policy might not cover damages that occur during renovations. 

This is where builder’s risk insurance comes into play, a specialized type of property insurance that covers buildings under construction or renovation. 

It typically covers damages caused by events like fire, theft, vandalism, and certain natural disasters. This coverage is crucial for protecting the work in progress and can be purchased either by the homeowner or the contractor, depending on your agreement.

Common Claim Restrictions Following Renovations

Be aware of the following claim restrictions that can pop up during renovations.

Pre-Existing Damages

It’s important to be aware that homeowner’s insurance policies generally do not cover pre-existing damages. 

If you uncover issues like water damage or structural problems during a renovation, these will not be covered under your current policy. It’s crucial to address any such problems before beginning your renovation to avoid complications later on.

Contractor Errors

If a contractor makes a mistake during the renovation process—such as improper installation of materials or faulty home construction—your homeowner’s insurance may not cover the resulting damages. 

This is why it’s essential to hire reputable contractors who carry their own liability insurance and workers’ compensation insurance. If they don’t have adequate coverage, you could be held financially responsible for any errors or accidents that occur during the project.

Building Code Compliance

For your insurer to accept a claim related to your renovation, the work must comply with current building codes. 

Failing to meet these codes can result in a denied claim, leaving you with costly out-of-pocket expenses. To avoid this, ensure all renovation work is up to code, obtain the necessary permits, and keep records of all inspections and approvals.

How Renovations Impact Liability Coverage

Renovations inherently increase the potential for accidents and injuries on your property. Home construction materials, tools, and debris can create hazards that aren’t typically present. 

For instance, exposed electrical wiring, sharp tools, and heavy machinery can all pose serious risks to anyone on your property, including workers, family members, or even passersby.

Given these increased risks, it’s wise to review and potentially increase your liability coverage. If someone is injured on your property during the renovation and sues you, adequate liability coverage will protect you from significant financial losses.

Contractor Liability and Workers’ Compensation

Before allowing any contractor to start work on your home, verify that they have sufficient liability and workers’ compensation insurance. 

If a worker is injured on your property and the contractor does not have workers’ compensation insurance, you could be held liable for their medical expenses and lost wages. 

Asking for proof of insurance and verifying its validity is a critical step in protecting yourself from these potential liabilities.

Safeguarding Your Home and Investment

Renovating your home is an exciting process that can add significant value to your property. However, it’s essential to recognize that these changes can also impact your homeowner’s insurance coverage. 

Whether you’re expanding your home’s square footage, installing high-liability features, or upgrading key systems, failing to update your insurance policy can leave you vulnerable to significant financial risks.

By understanding the potential impacts of renovations on your coverage, notifying your insurer, and taking proactive steps to mitigate risks, you can ensure that your home—and your investment—remain fully protected. 

Regularly reviewing your policy and insurance needs, both before and after renovations, is the best way to safeguard your property and peace of mind.

Ready to Transform Your Home? 

Whether you’re planning a major renovation or a simple upgrade, ensuring your project is in the hands of experienced professionals is crucial. 

At RPC General Contractors, we specialize in bringing your vision to life while safeguarding your investment. From initial planning to the final touches, our team is dedicated to delivering high-quality craftsmanship, on-time completion, and peace of mind.

Don’t wait to start your next home project! Reach out to us today for a free consultation and discover how we can help you turn your dream home into a reality.