Nail It: Home Insurance For Renovations

If the pandemic inspired you to pick up a hammer, you are hardly alone. More than half (54%) of homeowners made home renovations during the pandemic, according to The Hanover’s 2021 Home Renovation report. And that trend is likely to continue. Nearly seven in 10 homeowners say they have plans to make home renovations in the next year.

The most popular home renovation projects during the pandemic includes kitchen or bathroom (68%), yard features (35%) and finished basements (29%).

There are potential problems with home improvements, though—specifically inflation and material shortages. But homeowners aren’t letting skyrocketing prices cause them to delay renovations. A 2022 study by Nationwide found that 71% of homeowners with upcoming projects plan to continue work despite the added costs, material shortages and potential delays. Only 5% said they’re putting off projects because of inflation and shortages.

Still, 63% of homeowners say they’re worried about high material costs, 50% are concerned about material-related delays, and 45% worry they may have to choose other materials because of shortages, according to Nationwide.

Beyond the work and costs, homeowners making renovations also should keep home insurance in mind. The Hanover report found that 40% of homeowners didn’t let their home insurance company know about their upgrades and 26% said they didn’t know they should.

Not keeping your home insurer in the loop about renovations could be problematic and leave you underinsured.

How Does a Home Renovation Affect My Homeowners Insurance?

A standard homeowners insurance policy covers your house and personal belongings from setbacks like fires, tornadoes and theft. For example, if your house burns down, homeowners insurance would pay to rebuild the house and replace your stuff.

Some home renovation projects, like an addition, can increase the amount of money needed to rebuild it. Some projects could also mean adding more belongings, like new furniture in an addition. Both of these can increase the coverage amount needed to fully insure your home.

For example, if you had an outdated kitchen and did a major renovation that included installation of professional-grade appliances, new cabinets and granite countertops, you could potentially boost the cost to rebuild your house and replace its contents. That means you likely need more coverage to repair the kitchen after, say, a fire.

Speak with your insurance agent before you begin a renovation project to determine if you’ll need to increase your coverage limits. You’ll want to think about:

• The cost to rebuild the home. If a renovation project would increase the cost of rebuilding your home, evaluate your “dwelling coverage” limits with the help of your insurance agent.
• The cost to replace personal belongings. If you add upgrades such as high-end appliances or a jacuzzi, you may need to buy more personal property coverage.

Depending on the scope and length of the project, you might need to incrementally increase your coverage limits as the project progresses. For example, as more materials and/or items (such as appliances or furniture) are added, the insurance coverage can increase.

In fact, your policy may require you to inform your insurer of any additions, alterations or renovations–sometimes 30 days before work starts. Some insurers even have a penalty for not notifying them of construction projects: If there’s a claim during construction, they impose a 5% “construction deductible.” That means you’ll pay more out-of-pocket before insurance starts paying.

It’s also a good idea to ask your insurance agent if you need any additional coverage types during the work.

For example, American Family Insurance offers “dwelling under renovation coverage,” which covers construction materials if they’re damaged or stolen. Dwelling under renovation coverage also covers foundation collapse, which can happen when water pressure (hydrostatic pressure) collapses basement walls during renovation or construction.

Most Expensive Home Renovations

Renovation type	National average cost in 2021
Master suite addition (upscale)	$320,976
Master suite addition (midrange)	$156,741
Major kitchen remodel (upscale)	$149,079
Bathroom addition (upscale)	$103,613
Bath remodel (upscale)	75,692
Major kitchen remodel (midrange)	75,571
Bathroom addition	56,946
Roofing replacement (metal)	46,031
Bath remodel (universal design)	$38,813
Roofing replacement (asphalt shingles)	$28,256

Source: Remodeling Magazine Cost vs. Value 2021

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Do I Need to Notify My Insurance Company For All Renovation Projects?

A good rule of thumb: If your renovation project would increase the cost to rebuild the home after damage, contact your insurance company.

If you’re doing a minor renovation, like removing that 1970s-style wood paneling in the family room and repainting the walls, it likely won’t increase rebuilding costs. But it doesn’t hurt to ask your insurance agent. Even seemingly minor renovations like adding expensive light fixtures to your kitchen could alter your insurance need.

Bottom line: When you’re renovating your home, it’s a good time to review your homeowners insurance limits and speak with your insurance agent. The last thing you want is to be underinsured for a worst-case scenario, like a house fire.

What If I’m Hiring a Contractor to do the Renovation?

If you hire a home renovation contractor, make sure they have the right type of insurance. Generally, a contractor should have liability, property and workers compensation insurance. Ask to see their certificate of insurance. If your contractor doesn’t have adequate insurance, consider hiring someone else.

If your contractor hires subcontractors, you’ll also want to make sure they have the proper insurance.

If a contractor damages your home, their insurance may be primary (meaning their insurance will cover the fix), but your homeowners may help pay for repairing damage due to the bad work. For example, if a contractor does bad plumbing work that results in sudden water damage, your home insurance can cover the damage.

Keep in mind, home insurance won’t cover poor workmanship. A standard homeowners policy typically excludes losses caused by faulty, inadequate or defective workmanship. In other words, if your contractor does an unsatisfactory job, like improperly installing kitchen cabinets, you can’t file a claim with your homeowners insurance to fix it. Instead, if the contractor is unwilling to fix the problem, you would need to pursue a lawsuit against them.

What If I’m Doing the Renovation Myself?

If your home renovation is a DIY (do-it-yourself) project, perhaps aided by family and friends, it’s a good idea to make sure your liability and medical payments coverage is adequate.

Unfortunately, accidents happen. Slips, falls, lacerations from saws, burns and eye injuries are just some of the hazards during a renovation. If a guest injures themselves at your home, you generally have coverage:

• Liability insurance pays for medical expenses and a legal defense if someone sues you because of an injury.
• Medical payments to others pays for minor injuries if a guest is hurt on your property. This is typically sold in small coverage amounts, usually between $1,000 and $5,000.

And there’s never a bad time to consider buying umbrella insurance. You can generally get around $1 million to $2 million in coverage for about $380 a year, according to Trusted Choice, a group for independent insurance agents.

What If My Renovation Project Was Done Without Proper Permits?

If you or your contractor fail to get the proper permits for a renovation, there could be serious consequences, depending on where you live. For example, if your renovation is not up to local building and fire codes and done without a permit, a city inspector could shut down your renovation project. Even if the work is completed, if it’s not up to code, the inspector could require you to tear it down and start over.

Failing to get proper permits could also cause home insurance headaches. A standard homeowners insurance policy typically excludes problems associated with an “ordinance or law,” such as demolishing and rebuilding a renovation in order to meet building or fire codes. That means you won’t be able to file a homeowners insurance claim to pay for the cost of new materials and additional labor. You’ll be stuck digging yourself out of the financial hole.

What If I’m Not Living In My Home During the Renovation?

Vacant houses can be a problem for home insurance coverage. A standard policy often excludes losses when a home has been vacant for 60 or more consecutive days.

The vacant home exclusion usually doesn’t apply to homes that are “being constructed,” but if you’re not living at home during a renovation, make sure you won’t lose coverage under the “vacant house’ category. Speak with your insurance agent to see whether your situation will require “vacant home insurance.”

Vacant home insurance can cover problems like vandalism, weather damage and other problems (such as someone getting hurt on the vacant property). You may be able to customize a policy to add coverage for attached structures (like a patio) or personal property, such as maintenance equipment (like a lawnmower or snow blower) while the home is vacant.

Home Renovation Insurance Discounts

Once your improvements are done, you may even be able to get an insurance price break. Some home insurance companies offer home renovation discounts. To get the savings, you’ll generally need to have upgraded wiring, plumbing and heating in a home that was 20 to 25 years or more old.

Your improvements will also need to be up to code to qualify for a home renovation discount. An insurer might also require that the work was done by a qualified (and licensed where required) contractor.

Getting a new roof can also bring an insurance discount.

Home Insurance for Renovations FAQ