Home Renovations and Insurance: What You Need to Know
Home renovations are exciting, but with all the moving pieces, there is one part of the project that is easy to overlook: your homeowners insurance.
A renovation can change how much it would cost to rebuild your home, introduce new risks while the work is underway, and change what coverage you need once the project is finished.
Before the first wall comes down on your renovation, it's worth giving your insurance agent a call. Here’s what Northwest Arkansas homeowners should know before starting a renovation.
Not every home improvement affects your insurance the same way
Don't worry, painting a bedroom or replacing a bathroom vanity generally isn't going to require a major insurance conversation.
Larger projects can change the calculus, though. Adding square footage, finishing a basement, remodeling a kitchen, replacing a roof, adding a deck or installing a pool can all affect the cost to rebuild your home or the risks associated with the property. That can mean your current coverage limits need to be reviewed.
The important question isn't simply how much your house is worth after the improvements.
Your homeowners policy is concerned with the replacement cost, which is the cost to repair or rebuild your home after a covered loss. A major renovation can increase that cost, particularly if you're adding square footage or upgrading materials and finishes.
That's why it is a good idea to talk with your agent before the renovation begins, rather than waiting until the project is finished.
Tell your insurance agent what you're planning
If you're planning a major renovation, let your agent know what you're doing.
Your agent may want information such as:
What areas of the home are being renovated
Whether you're adding square footage
The estimated cost of the project
The expected timeline
Whether you're hiring a contractor
Whether you will be living in the home during construction
Whether permits are required
Any major changes to plumbing, electrical, heating or other systems
This gives your insurance company a chance to determine whether your existing coverage is appropriate or whether adjustments are needed during or after the project.
It can also help avoid an unpleasant surprise if you have a claim later and the home is no longer adequately insured for its replacement cost.
What about damage during the renovation?
Your homeowners policy doesn't necessarily cover damage from a remodel. Coverage during construction depends on the circumstances, the type and size of the project, and the specific terms of your policy.
For example, your homeowners policy may cover certain damage caused by a covered event, but it generally isn't designed to pay for correcting poor workmanship or defective construction itself.
If a contractor installs something incorrectly, the cost of correcting the contractor's work may be a contractor issue. If that mistake subsequently causes a covered loss, such as a fire, the resulting damage may be treated differently under your policy.
Because renovation situations can vary considerably, this is one of those times when it is better to ask your agent before the project starts rather than try to figure it out after something goes wrong.
Make sure your contractor is properly insured
Before hiring someone for a major renovation, ask for proof of appropriate insurance coverage. Depending on the project and contractor, this may include general liability insurance and workers' compensation coverage.
You should also verify that the contractor is properly licensed when required. For Arkansas homeowners, the Arkansas Attorney General's Office recommends checking a contractor's license and requiring a written contract. Arkansas contractors performing home improvements costing more than $2,000 generally must be licensed and bonded through the Arkansas Contractors Licensing Board.
Don't be afraid to ask questions. A reputable contractor should understand why you want to see proof of insurance.
Don't forget about permits
If your renovation involves structural changes, electrical work, plumbing, additions or other work requiring approval, make sure the necessary permits are obtained and the work is completed according to applicable codes.
If you're unsure what your project requires, check with your local building department or your contractor.
Your insurance agent can also help you understand whether your renovation creates any additional coverage considerations, such as ordinance or law coverage. This type of coverage can be important when a covered loss means you have to bring part of an older home up to current building requirements.
Some renovations can change your liability risk
Some additions to your home can add additional risk, such as:
A swimming pool
A trampoline
A large deck or elevated structure
Outdoor stairs
A new fireplace or wood-burning stove
A detached guest space
A finished area that changes how the property is used
These changes can affect your personal liability exposure. Some improvements may also require changes to your policy or additional safety precautions. Your agent can help you get ahead of these changes with a policy review.
Keep records of the work
Keep copies of your:
Contractor agreement
Invoices and receipts
Permits
Plans or drawings
Photos before and after the renovation
Documentation for major appliances, fixtures and upgrades
Take pictures throughout the project, not just when the renovation is finished.
And once the work is complete, tell your insurance agent. The final renovation may have changed your home's replacement cost, so your coverage should be reviewed again.
What about a new roof or other upgrades?
Some improvements can potentially affect your insurance in a positive way.
For example, replacing an older roof, updating outdated electrical systems or adding certain protective or security features may reduce risk and, depending on the insurance company and policy, could potentially make you eligible for a discount.
Let your agent know about the improvement and ask whether it changes your coverage or eligibility for any available savings.
What if you have to move out during the renovation?
If a renovation means you won't be living in your home for an extended period, tell your insurance agent. Policies can have specific provisions regarding homes that are vacant or unoccupied, and your coverage needs may change depending on the circumstances.
Don't assume your normal homeowners policy will work exactly the same way while you're living somewhere else. Also, if you're moving into a rental, make sure you get renters insurance. This affordable insurance will protect whatever belongings you own within your rental house or apartment.
Your renovation checklist
Before construction:
☐ Talk with your insurance agent about the project
☐ Review your dwelling coverage
☐ Ask whether additional coverage is needed during construction
☐ Verify your contractor's license and insurance
☐ Make sure required permits are obtained
☐ Document the condition of your home before work begins
☐ Let your agent know if you'll be moving out temporarily
After construction:
☐ Give your agent the final project information
☐ Review your home's replacement cost
☐ Update your coverage if necessary
☐ Keep receipts, permits and renovation records
☐ Ask whether any improvements qualify for insurance discounts
Remodeling your home? Call your insurance agent first.
A five-minute conversation before construction begins can help you understand how the project may affect your coverage, what information your insurance company needs and whether any changes should be made to your policy.
