One perk of homeownership is that you can create your own space. The landlord isn’t in the way, so you can strip off your existing countertops and paint the walls red. However, some renovations affect the home insurance premiums. Before setting up a pool or updating your room, we recommend that you consider whether the insurance rate will rise or fall as a result. Bankrate’s insurance editorial team has identified seven common home renovation projects that could affect the cost of home insurance.
Renovation to raise housing insurance premiums
Renovating your home may increase the value of your home, but it can also increase the cost of your home insurance. In addition to the costs of renovations, you may see higher premiums if the renovation encourages you to increase coverage limits or be exposed to greater liability.
1. Construction of a swimming pool
In certain locations, adding a pool to your home will increase its value and provide incentives to become a buyer. However, swimming pools are considered “attractive nuisance” (especially if you have a diving board or slide), and will significantly increase your liability risk. This could potentially increase homeowners’ premiums. Additionally, insurance providers may need to be responsible for higher liability coverage or encourage them to purchase umbrella insurance policies. Insurance providers may decide that they need to install a rock fence around the pool or even not to provide coverage.
2. Adding an office for home business
Working remotely is becoming more common, adding an office can increase the value of your home if you are a remote worker or a worker from home. However, if you need to purchase approvals to raise your homeowner’s insurance rates, increase your business-related assets and equipment coverage, or another housing business policy that provides liability and protection for crimes and workers’ injuries.
You may need to strengthen your existing policies or purchase additional business policies. Depending on your insurance provider, there may be several options.
- Approval of existing homeowners’ policies: This option increases the existing limits for business properties included in the homeowner’s policy.
- Business Owner Policy: This is a separate policy specifically designed to ensure your business and includes a variety of coverage. If the company excludes household insurance for business use of personal property, the insurance company may request this.
- Home Business Insurance: This type of insurance features the same protection you get if you are a large company with less insurance restrictions and premiums.
Regardless of the scope of your business, you need to let your agent know if you have business risks in your home and make sure you are covered properly.
3. Building on extensions
You may need to change your home to accommodate your growing family. That means changing the floor plan and adding a more livable area. Expanding space with new area increases the likelihood of increased home insurance premiums.
Before you begin any renovations, you can talk to your insurance agent and discuss policy changes. For example, if you are finishing up a basement with new carpets, drywalls and insulation, agents recommend purchasing backup coverage for your sewer. Once the renovation is complete, you will likely need to reassess your insurance to ensure the coverage you need for your home.
4. Kitchen or Bath Upgrade
According to the 2024 Cost vs Value Report, moderately remodeling of baths and kitchens will provide over 70% or 95% of recall value, respectively. These renovations may result in you paying more for housing coverage as the upgraded material is worth more and costly to replace it. Before signing off for a modification, your insurance agent should be able to run the number to determine whether you need to adjust your insurance policy.
Renovations to reduce home insurance premiums
There are many aggressive housing improvements that can lead to reduced insurance costs. Safety-related changes such as plumbing upgrades and roof modifications can make home insurance more affordable.
1. Roof renovation or replacement
Installing a new roof may not be the most exciting home improvement, but homeowner insurance may save you money. Replacing the roof with a new or stronger material usually means a reduction in premiums as the home may be able to withstand potentially covered hazards.
Some homeowners may earn even greater discounts if they live in hurricanes, wind, or any condition, and new roofs employ special loss mitigation measures such as hurricane straps, waterproofing and impact-resistant shingles.
While most home policies cover hazard roof replacements as defined in your policy, some insurers use depreciation schedules based on the age of the roof to determine how much coverage you want to obtain. The newer the roof, the more likely it is to receive coverage from your home insurance.
2. Upgrading wiring or piping
When upgrading your wiring or plumbing systems, you are eligible for an insurance discount, especially if they are old or have not met current building standards. Rewiring your home can be expensive, but it can also reduce the risk of fire and electrical damage. This means that insurers may not be asking for coverage to reduce risk. For example, if you have knob and tube wiring (used in most homes built before 1950), the premium can be significantly reduced, and you will see that more insurers are willing to insure your home.
The same applies to piping. Several types of plumbing, such as lead and polybutylene, make finding home insurance coverage difficult and expensive. Upgrading to more modern plumbing hardware can reduce the risk of water damage and reduce household insurance premiums.
3. Adding security systems and sprinklers
In the insurance industry, home security discounts are relatively common, and there is usually some variation in savings levels. For example, installing a local alarm system that will sound at home in the event of an intruder will give you a small discount. An alarm system that automatically alerts police or central dispatch teams about multiple incidents, such as robberies and fires, will likely get a higher discount. Interior sprinkler systems also reduce the risk of large-scale fire damage, which can lower premiums. Installing smart home devices and systems may earn you a discount on homeowner insurance.
Do I need to increase my homeowner’s insurance after renovation?
Depending on your current coverage and type of renovation, we recommend that you increase your home insurance during renovations or after the project is complete. Insurers use valuation tools to determine the amount of home insurance coverage they need based on the current structure of the home. If the renovation increases its rating, you could also consider increasing coverage. Without an increase in coverage, if a disastrous event occurs, the improvements you made may not be covered.
Another thing to consider is if there are significant improvements outside the home, such as adding a high-end shed or pool. Unless your “other structure” coverage is sufficient in your homeowner’s policy, they may not be covered. Let your insurance company know when you do any kind of work at home. This will allow for a post-renovation assessment to accurately determine your new compensation needs.
What should your insurance company know after renovation?
Most insurance agents want to work with you to adjust your insurance so that your home gets the coverage you need. If you do not notify the company about the renovation and submit a claim later, you may be denied because it is not covered.
It’s probably the easiest to talk to an agent in person or over the phone. In addition to talking about the project, you also need to give a cost estimate and a timeline. If you need to obtain a building permit, the insurance company may need copies of them along with the contractor contract. You should provide a timeline of when work will take place and when it will be completed, especially if policies are adjusted. Finally, some insurance companies may request photos to document renovations.
Additional Home Renovation Insurance Options
When you complete a home renovation, we recommend that you check if additional coverage is required during the renovation process. While current home insurance may already have ample coverage, there may be some changes to make during construction.
- Builders put insurance at risk: This coverage financially protects the materials you purchase to install, whether you are on your property or on your way to your property. If the material is damaged or stolen, the builder’s risk insurance must cover the replacement costs.
- Vacant housing insurance: Most standard home insurance does not cover unmanned homes. If you need to live outside your home while the renovation is underway, we recommend considering vacant home insurance. This is often overlooked housing insurance, which will protect your home financially if damage occurs while you are not actively living there. We recommend talking to your insurance agent about how to change coverage while the renovation is complete.
- Contractor Insurance: This may be important coverage if you are hiring a third party to perform the renovation. Contractor Insurance provides coverage for property damage, injuries or damages from contractors working in your home. Triple-I recommends that you ask the contractor if you have insurance and obtain a copy of your liability insurance certificate before signing the contract. A typical GCL policy includes a total limit of $1 million and $2 million per occurrence.
