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Homeowners insurance is a complicated topic, but adding home renovations to the mix can make it even more confusing.
You may be wondering if your existing homeowners insurance policy pays for damages or injuries that occur during the renovation process, or whether your policy covers damage to your renovated or remodeled home.
The answer depends on the amount of coverage you have. You’ll likely have to increase your coverage limits to ensure it thoroughly protects you during and after a home renovation project.
Will homeowners insurance pay for renovations?
Whether your homeowners insurance policy pays for renovations made to your home depends on why you’re renovating your house.
Homeowners insurance typically only covers damages from unexpected events like theft, vandalism, or severe weather. For example, if a storm damages your home to the extent it requires rebuilding, homeowners insurance will cover the cost.
However, if you planned for the home renovation to occur, it’s probably ineligible for coverage. So, if you want to upgrade your kitchen or bathroom because it could use a new look or an upgrade, your insurer will likely refuse to cover the renovations.
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Does homeowners insurance cover renovations in progress?
Whether your insurer will pay for your home renovation depends on your policy’s terms. The best way to know is by asking your insurance company what coverages you’ll need before your home improvement project.
Your insurance company may ask you to increase your coverage limits on your dwelling, other structures, or personal property coverage. For instance, if you build a new home addition, you must adjust your dwelling coverage. If you plan to purchase furniture for your added living space, you’ll adjust your personal property coverage.
Additionally, if you’re doing a minor renovation with friends and family help, for example, consider increasing your no-fault medical protection. This insurance covers medical costs incurred by people outside your household if injured on your property.
If you fail to update your coverage limits, you may face issues when submitting a claim for coverage. Additionally, homeowners insurance doesn’t cover poor workmanship or faulty work. If your insurance agent doesn’t recommend increasing your coverage limits, they’ll probably point you toward builder’s risk insurance.
Builder’s risk insurance
Construction sites are hot spots for theft and vandalism. A builder’s risk policy protects your home structure and building equipment and material on or off-site.
The good news is that builder’s risk insurance starts with low premiums. It increases as your home gets built and its replacement cost increases. However, unlike a standard homeowners insurance policy, builder’s risk doesn’t offer personal property or liability insurance.
Property owners, general contractors, and subcontractors typically purchase builder’s risk insurance. It’s a good idea to ask the people working on your home if they carry builder’s risk insurance. If not, you may want to purchase this coverage.
Does homeowners insurance cover completed renovations?
Your home insurance company will likely cover completed renovations. But you must update your coverage to reflect the new value of your primary home, other structures, and personal property.
Keep in mind that increased coverage means your insurance premiums will go up.
What home insurance covers
Homeowners insurance covers damages and repairs to your home if a listed peril caused it. Perils are risk factors that result in losses or damages to your property. Some examples of covered perils include fire, smoke, theft, and vandalism.
A standard homeowners insurance policy offers the following coverages:
Dwelling coverage protects your home’s structure, like its foundation, walls, and roof, against all perils, as long as it’s not excluded from your policy.
Medical payments coveragepays for medical costs if someone gets injured on your property.
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What homeowners insurance doesn’t cover
Homeowners insurance companies enforce policy exclusion because some perils are too costly to insure. Exclusions include but are not limited to:
Floods: Homeowners insurance doesn’t cover floods because they’re widespread, high-risk events that tend to cause expensive damages. You’ll have to purchase a separate flood insurance policy to receive this coverage.
Earthquakes: Like floods, earthquakes cause expensive damages. Insurers don’t offer it as standard coverage in order to avoid significant financial losses. You’ll have to purchase a separate earthquake insurance policy to receive this coverage.
Poor maintenance: Insurance companies don’t cover damages from neglect, like termite and mold growth. Instead, the homeowner is responsible for conducting regular and proper home maintenance.
High-value items: Home insurance policies have low coverage limits for valuable items, like jewelry, furs, or collectibles. But you can raise your personal property coverage limit or purchase a floater to fully insure your high-value items.
Other damages: Some perils, like war or nuclear hazards, are typically excluded from a standard homeowners insurance policy.
Home improvements that can decrease insurance rates
Although home insurance doesn’t cover home renovations in all cases, home improvements may lower your insurance rates. This is how different home repairs reduce your insurance premiums and by how much, according to home services website Angi:
Roof: Replacing an old roof makes it less vulnerable to water damage and can save you up to 35% on an insurance policy.
Wiring: Upgrading to copper wiring reduces the risk of electrical fires and can save you up to 20% on your insurance policy.
Plumbing: Old plumbing systems that aren’t up to current building code are susceptible to flooding and water damage. Many insurers will credit up to 20% of your insurance policy for modernizing your plumbing system.
Security systems: Installing security systems reduces the risk of theft or vandalism losses and can save you up to 20% on your insurance policy.
Sprinklers: A sprinkler system helps put out fires and earns you a discount of as much as 10% on your policy.
Deadbolt locks: Installing deadbolt locks on exterior doors provides added security, potentially leading to a 10% discount.
Wind retrofitting: Wind-proofing your home can help it withstand high winds and debris impact. Fortifying your house against wind can get you a discount of up to 15%.
Home improvements that can increase insurance rates
Some remodeling projects necessitate more coverage. As a result, your insurance premium may increase.
Swimming pool:Attractive nuisances like swimming pools or trampolines increase the risk of accidents on your property. As a result, you may require more liability coverage, raising your insurance costs.
Extension/addition: Raising your home’s square footage requires increasing your dwelling coverage, which means higher insurance premiums.
Home office: A home office often requires increased personal property coverage to protect your business equipment. Similarly, increased liability insurance is a must depending on the type of business you operate.
Bath/kitchen remodel: If you upgrade your bath or kitchen with high-value material such as granite or marble, your home’s replacement cost coverage increases.
How to ensure your home renovations are covered
Home renovation sites are exposed to increased risk, and you’ll want to protect your home and the improvements you’ve made. Here are some ways to guarantee your homeowners policy covers your home renovation projects.
Tell your insurer
Notifying your home insurance company before you begin renovations is a good idea. Your insurance agent will let you know if you should update your existing insurance policy or if you should purchase separate coverage for your home construction. It may also be a good time to inquire about any discounts you qualify for after home renovation.
Adjust your coverage limits
Here’s a closer look at the coverages to adjust before your home renovation project:
Dwelling coverage: Determine the replacement cost of your improved home and adjust your dwelling coverage amount.
Personal property coverage: Increase your personal property limits if you’ve bought new things for your remodeled home, like art or furniture. You may need additional coverage via a personal property endorsement or floater for expensive items.
Personal liability coverage: You’ll also want more liability insurance if you’ve installed attractive nuisances, like a swimming pool or a hot tub.
Document your home improvements
Your insurance company may ask for documents related to your home renovations. Take pictures and keep copies of contracts and receipts you’ve accumulated throughout the renovation process.
Home insurance and renovations FAQs
Below, you’ll find answers to common home insurance and renovation questions.
Does homeowners insurance cover damage during home improvements?
It’s possible. It depends on your insurance company. Your insurer will likely ask you to increase your coverage or purchase a home construction endorsement like builder’s risk insurance.
Is your home covered for fire during a renovation?
It depends. If the value of your home after improvements is reflected on your policy, then yes, a typical homeowners insurance policy covers fires during renovation. If not, or if you don’t have a home construction add-on, you may not have enough coverage for fire damages.
Is your home covered for flood during a renovation?
No. Homeowners insurance policies exclude flood damages that occur during a renovation.
What is the 80/20 rule in home insurance?
The 80/20 rule advises homeowners to insure their property for at least 80% of its total value.
If your coverage limits reflect less than 80% of its replacement cost, you may only receive a portion of your entire claim. So, if you renovate your home, update your coverage limits to adhere to the 80/20 rule.
Alani Asis is a personal finance freelance writer with nearly three years of experience in content creation. She has landed bylines with leading publications and brands like Insider, Fortune, LendingTree, and more. Alani aims to make personal finance approachable through fun, relatable, and digestible content.