Insurance Needs When Renovating Your Home

Home renovations come in all shapes and sizes. Something simple like a kitchen or bathroom remodel can be done while you are still living there, while more complex structural renovation projects require the homeowner to move out and call in professionals like architects and engineers.

In most cases, you will also probably be hiring a contractor for your renovation project. Outside of the basic things like proper planning, budgeting, contractor selection, and getting details in writing, there are a few things you should know when hiring a contractor about insurance for renovations.

Inform Your Insurance Provider

Shopping for new flooring or décor is certainly more fun, but you need to include insurance details early on in your planning stage. Most people skip this step, but remember when you are making changes to your home, you are making changes to the thing your home insurance policy is insuring. If you do not inform your provider before starting renovations, they could deny your claim.

This is especially important if you are going to be making structural changes or adding something like a pool, fireplaces, or a rental suite that can increase the risk of loss to the insurance company. If you do not inform your insurance company of these material changes in risk and a loss occurs as a result of these changes, you may not be covered.

In addition, if you are making changes that will increase the value of your home, you will want to update the amount of insurance provided by your policy to ensure you have adequate insurance.

As an added bonus, if your renovations involve updating your roof, wiring, plumbing, heating, or security systems, you could even save money on your insurance premiums after notifying your insurance company or broker!

Vacancy Permit

Depending on the nature of the renovations, you may need to move out of your home until they are completed. If you are away from your home for 30 days or more, it will be considered vacant and a violation of your policy terms. That means if a loss occurs while you are away, it would not be covered.

Vacancy is a very serious matter when it comes to insurance. If you are going to be away for an extended period of time, you will need to ask your home insurance provider for a vacancy permit to ensure there is no interruption in your coverage. Note that a vacancy permit will have less coverage than your typical homeowner’s insurance policy.

A vacancy permit is essentially an add-on (in insurance terms, we call it an endorsement) that extends coverage to homes that are vacant or unoccupied. These permits are usually set for a specific length of time and features reduced coverage. Other types of vacancy permits also make you cover part of any fire loss in order to mitigate concerns around insurance fraud.

Course of Construction Insurance

If you are making major structural changes to your home, your standard home insurance policy may not cover it. Speak with your insurance provider to see if you need to take out a “course of construction” policy. A course of construction policy (sometimes called builder’s risk insurance) is a specifically designed insurance for renovations policy that insures buildings that are under construction and will have coverage and terms tailored to that specific need.

Builder’s risk insurance comes in many forms and can be purchased by both the general contractor in charge of the project or the building owner who hires the contractor. This type of insurance protects the property that is under construction, materials that will be used in the project (things like roof shingles), as well as any landscaping or temporary structures that are necessarily erected to complete the project.

It will not insure against any faulty workmanship or cover the contractor’s own tools and equipment so make sure they have their own insurance policy for that.

Liability Insurance

Generally speaking, contractors are liable for their own mistakes. Part of the standard vetting process for a contractor will involve checking their insurance policy to see if they have insurance protecting their workers, tools, craftsmanship, and so on. But if you’re prudent, you should also check to see whether your home insurance policy includes third party liability coverage.

If possible, you should always request a certificate of insurance from your contractor to ensure your interests are protected.

You could be found liable for any damage done by your contractor if you were not careful in selecting the contractor, assigned them unreasonable or dangerous work, controlled the way they worked, or supplied materials that were defective.

A professional contractor should have insurance covering their tools and equipment as well as any materials they will be using as part of the project (i.e. lumber, etc.). In addition to this, they should carry third party liability insurance to ensure you, your neighbours, and any third parties are protected from their mistakes. If your project is large enough, you might even want to look to make sure your contractor is bonded as well.

What Home Renovations Affect Your Insurance?

If you’re replacing that stiff hinge on your cupboard door or painting an accent wall in your bedroom, it will be a waste of everyone’s time to pick up the phone and let your insurance company know about it. But if you’re redoing your kitchen, adding a deck, putting in a new floor, or adding a swimming pool, that’s a whole other story.

Virtually any home renovation or addition can affect you homeowner’s insurance. As soon as you enter the planning stages of your home improvement project, you should look into how it will affect your insurance. This article will give you information and pointers so you know what to do and what to be on the lookout for when planning your renovations (for a primer on home insurance, see The 5 Basic Types of Home Insurance Coverage You Need to Understand).

Neither Snow nor Rain…

The United States Postal Service’s famous creed goes,

Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.

If only our homes could bear those elements as well as our postal workers! As many homeowners have had to learn from unfortunate experience, a damaged or poorly maintained roof could result in your floor and furniture becoming acquainted with the outdoor elements.

The majority of insured losses due to snow, wind, hail, and rain are due to a roof that has failed (find out whether your homeowners insurance covers damage from hail). That’s good news for people looking to get their hands dirty on a home renovation project or hire someone to do it: replacing an aging roof with a new one is one of the easiest ways to reduce your homeowner’s insurance premiums.

In some cases, a new roof could means 10 to 20% savings. This is especially so if you live in an area that is prone to hurricanes or hailstorms (find out How Insurance Companies Calculate Your Home Insurance Premiums).

To be sure you get the best insurance discount, get written confirmation from your contractor that the roof complies with the strictest building codes. Submitting this documentation to your insurer when you notify them of the new roof will make a good case for easing your monthly rate.

1. Adding a Swimming Pool

While a new roof is the easiest way to decrease your home insurance premiums, building a swimming pool is the easiest way to increase them.

If you like swimming or cooling off by floating in the water, I don’t want to discourage you from adding a pool to your home. But talk to your insurance agent or broker before signing a contract with the builder. Make sure you know what you’re getting into and if there are ways to keep the premium increase on the lower end.

There’s an insurance industry term for these upgrades: attractive nuisance.

What that means is they’re basically a magnet that draws others to your property, even if you’re not home. And if a child decides to take a dip in your pool while you’re at work and injures themselves, you can be liable for court costs, legal fees, the court settlement, and ongoing medical bills. Because of all that, you’ll need more liability coverage.

You’ll probably also need a higher policy limit to account for the increased property value.

Some people are tempted to just keep the new pool or hot tub under wraps so their insurance costs stay low, but that isn’t a viable option. If you fail to inform your insurer about these upgrades, they might reject your claim or drop your policy altogether. And if your auto insurance is bundled up with your home insurance, you could lose that coverage, too.

Diving boards and slides are fun, but they will increase your premiums. In almost every jurisdiction, you’ll be required to put in a fence and locked gate to around your pool area, but see whether getting something beyond the minimal protection can limit your premium increase.

Adding a swimming pool will also increase the value of your house, so be sure to increase your coverage. It’s hard to know exactly how much of an increase you’ll need without knowing the details of your particular situation, so be sure to bring this up with your agent or broker (if you don’t have one yet, see these 5 Questions to Ask Before Choosing an Insurance Agent).

2. Redoing Your Kitchen

Major kitchen renovations can significantly increase the value of your home. You should report these renovations to your insurer to make sure your coverage is adequate.

If you bought a home with laminate countertops, linoleum floors, and appliances that look like they might be older than you, chances are you didn’t need a whole lot of coverage in the event of a loss. But now that you’ve put in granite countertops, custom cabinets, a hardwood floor, and shiny, top-of-the-line appliances, your old policy limits might no longer be enough – and you don’t want to have to go back to walking on linoleum if there is significant damage to your kitchen.

It’s not a bad idea to get documentation and take before-and-after photos to capture the transformation. Be sure to include details about any upgrades to the plumbing and electrical systems. Modernizing your kitchen will result in an increase in premiums, but that can be offset by upgrading the electrical and plumbing to increase safety.

3. Adding Fire Features to Your Home

Adding a wood stove, fireplace, outdoor fireplace, or fire pit increases fire risk. Most insurers provide coverage for fire features, but whether you’ll pay extra for it depends on your existing coverage (learn more about Fireplaces and Wood-Burning Stoves: How to Use Them Safely and Keep Your Home Insurance Costs Manageable).

Your personal property limit may cover a loss if you own a small portable fire pit, but you’ll probably need to increase your coverage (and your insurance costs) if you install an elaborate permanent fire pit or a new wood fireplace.

4. Building New Structures

A typical homeowner’s policy includes coverage for additional structures on your property, but usually only up to a maximum of 10 percent of your overall coverage limit.

If you’re adding an expensive deck, gazebo, pool house, boat house, or garage, you may need to boost your insurance coverage. Of course, this also means increased insurance costs. This also means that you need to find an insurance provider that will offer the add-ons you might need in the future.

5. Creating a Home-Based Business Office

Your homeowner’s policy may provide limited protection for business equipment, and you may be able to add an endorsement to your policy for an additional premium for some inventory or specialized equipment.

Depending on the nature of your business, your clients or customers might visit your home. If they do, that puts you at an increased liability risk and you’ll probably need a business insurance policy to protect your from the costs associated with lawsuits (learn more in Back to the Basics: The Key Elements of Your Business Insurance Policy).

6. Changing Building Materials

Insurers look at a lot of factors when estimating the risk of insuring you and your home. One of those factors is the constructions techniques and materials used to build your home. Expensive materials cost more to replace, and your insurer will charge you more accordingly.

Underwriters also look for fire retardant materials. If you’re thinking of covering stucco with cedar shakes or lap siding, your premium could rise. Some insurance companies frown upon vinyl or aluminum siding because they’re susceptible to wind and hail damage (for a discussion of other cases, see Does Homeowners Insurance Cover Natural Disasters?).

If you’re not married to using a particular material and want to avoid additional costs, discuss your renovation plans with your insurance agent before you begin work.

7. Adding a Trampoline, Swing Set, or Jungle Gym

A trampoline, sing set, or jungle gym is a lot of fun for the kids, but they’re also risky. That’s especially so since, like a pool, they can attract other children to your property, even when you’re not home.

Some insurance companies won’t cover play equipment at all, while others will only do so if it meets other standards and the homeowner installs safety equipment.

As with pools and hot tubs, adding any of these items without telling your insurer is a material misrepresentation which can lead your insurer to deny all claims (not just those related to this equipment). Your insurance company may also cancel your policy, making it very difficult to insure again.

You would also pay all lawsuit and medical costs out-of-pocket if someone gets hurt on your property (find out Why You Need a Lot of Liability Coverage – Even if You’re Law Abiding).

If you do find an insurance company willing to insure these items, it will increase your insurance costs due to increased liability.

8. Making Structural Changes

Substantial renovations, such as removing walls to create an open floor plan or replacing the roof structure, an exterior wall, or the foundation, increases risks and can trigger changes in your insurance.

Your insurance company may insist your homeowner’s policy reverts to another policy form while your home is under construction. You may need to buy a builder’s risk policy to protect yourself from the costs of a collapse, hazardous materials such as asbestos or lead paint, and work improvements required for building codes.

Some of these changes may significantly affect the scope and duration of your renovation, your insurance coverage, and premiums. The cost depends on the scope of the work and the risks. As always, an insurance professional can advise you.

9. Leaving Home Vacant During Renovations

If you bought a home and haven’t moved into it yet, or you’ve rented it and it’s vacant now, contact your insurance provider to ensure you’re protected during renovations.

Many insurance policies don’t cover your home for most perils if it’s left vacant. And if they do, they might only cover it if you let them know that it will be unoccupied. They might also only agree to cover a vacant property for a higher premium or charge you a fee for a vacancy permit.

What Insurance Is Needed?

Make Sure the Contractors Are Insured

Many people are tempted to work with an unlicensed and uninsured contractor. They’ll likely offer you a lower price, which can be attractive when the price range for these projects are so high. But if a liability issue arises, you’ll wish you had dealt with a licensed and insured contractor instead.

For larger projects, you’ll probably hire a general contractor. They, in turn, will hire subcontractors to do much of the work. Both the general contract and subcontractors should have liability insurance. The general contractor especially should also be bonded (with a surety bond). This ensures that you can recover monetary losses if the contractor cannot complete the job due to illness, bankruptcy, or whatever reason.

Don’t be afraid to be assertive about asking contractors about their insurance. You’re entitled to this information and their coverage matters to you. Being too timid to ask might leave you suffering a loss due to an accident or the contractor’s negligence.

Make Sure You’re Insured, Too

You might need additional coverage yourself. Let’s say you’re adding a second floor to your home. To do that, you’ll need to remove most of the furnishings from your home until the renovation is complete. So, you’ll likely rent a trailer, park it on your property, and store your stuff in it. Now, here’s where the details of your policy really come into play. Does your homeowner’s insurance cover the trailer and the items stored in it? Would it cover your furnishings if they were housed in a storage facility instead? Ask your agent or broker before you decide on the right option for storing your stuff.

Builder’s Risk Policy and Completed Operations Policy

Okay, I might be getting a little bit off track here when it comes to home renovations and how they affect your insurance. But I wouldn’t want to send you off to plan and execute your home renovations without first telling you about these two policies.

Completed Operations Policy

A completed operations policy will cover you when the project is complete. If a plumber installs some new pipes during your summer renovations but they freeze and burst once winter comes, this insurance will cover you for the losses (for related reading, see 5 Water Damage Home Insurance Scenarios: Are You Covered?).

Builder’s Risk Policy

Builder’s risk will cover you in case the contractor suffers a loss related to equipment while working on your home. If, for instance, they leave tools and materials on your property and they are stolen overnight, this type of policy will cover you.

If you’re not sure your project is big enough to require these kinds of policies, ask your agent or broker about your level or risk and their advice for covering it.

Smart Planning Is Part of the Process

Any renovation or addition big enough to change the value of your home needs a lot of planning. You’ll need a clear idea of what you want done, find the right people to do it, and make sure you’ve got the budget to see it through. There will already be a lot on your plate during the planning process, but make sure you take the time to work through the insurance implications of your project before embarking on it. Find out how the renovation will affect your premium, what kind of coverage you might need, and what you can do to keep the increases minimal.