People have spent a lot more time at home because of the pandemic, and we have all seen the stories being shared about new and exciting home improvement projects happening. It’s often surprising when those same projects actually change your Homeowner’s Insurance Needs as well.
Besides making you feel great, they have probably changed your homeowners insurance needs too.
When you complete home improvement projects, you need to tell more than your family, friends and social media followers. Your insurance agent is actually one of the first people you should tell.
Specifically, you need to tell your agent about home improvement projects that potentially add value to your house.
Here are just some of the home improvement projects you should consider discussing with your agent:
- Remodeling or renovating part of your house
- A project that adds square footage to your house
- Adding a deck
- Digging a pool
- Finishing your basement
- Building a new structure (pole barn, shed, garage, etc.)
- Replacing your roof, siding, windows or similar exterior feature
- Any project that adds significant value to your house
How do home improvement projects affect my homeowners insurance?
The main way home improvement projects may affect your home insurance is they can change the cost to rebuild your house. And that is a big deal. After all, it’s the main reason you have an insurance policy for your house: To repair or possibly rebuild your house in the event of a disaster (based on the coverages purchased).
Insurance companies often provide coverage based in part on the cost to fully rebuild your house in the event of a loss. Some policies even provide coverage on an actual cash value (ACV) basis. ACV is based on the age and condition of the property at the time a loss happens.
The cost to rebuild your house is called “Replacement Cost”. When you have a policy that pays on a replacement cost basis, we want to insure the full cost to rebuild your house. Not necessarily what it may sell for, but what it would cost to build it new.
Let’s look at an example:
Dominic and Sam buy a house. Two years later, they decide to add a garage. Later that summer, a strong storm comes through and a large tree falls on their house.
Unfortunately, Dominic and Sam didn’t tell their agent about the garage they built. So, their insurance will likely only cover up to the limit of insurance they purchased, even if the cost to rebuild with the garage is higher than that limit. This may leave them footing part of that repair bill.
If Dominic and Sam told their agent about their new garage, their insurance would have been adjusted to have adequate limits to rebuild their home the way it was when the loss occurred.
There are also endorsements or amendments to policies that cover increased costs in construction. This may help in a situation similar to our story above. However, even these endorsements may have provisions stating that you must notify your agent if any combination of home improvements will exceed a certain percentage of the replacement cost of your home.
Moral of the story: tell your agent about your home improvement projects.
The policy limit you originally selected for your Homeowners Insurance can become outdated and may not be high enough after your recent home improvement project. Your insurance company will only pay the limit shown on your policy.
Large updates can change how you’re compensated for a covered loss
There are some situations that a home improvement project may actually change how we can compensate you in the event of a covered loss. While most homeowners policies have replacement cost, there may be parts of the home that are only insured for actual cash value, such as your roof. In the case of roofs, this is dependent on the age of the roof.
For example, if your roof is 20 years old, it may be insured at actual cash value. However, if you recently replaced it, you may qualify for replacement cost on your roof. Telling your agent about the update helps ensure your policy is written with the best coverage possible.
It can warrant a change to your home insurance policy’s limits
When you bought home insurance, you selected limits of coverage. Limits are just what they sound like. Your policy will cover up to a certain dollar amount of damage. Different coverages within your policy have their own limits.
For example, your personal liability coverage within your home insurance has varying limits you select at the time of purchase. Liability coverageprotects you if somebody makes a claim against you or another insured because of an injury, property damage or other covered loss.
So, if you added a pool, your agent may advise increasing your liability limits because of the risk of potential injuries and having more people over to your house to swim. Another example would be if your home improvement project was building a pole barn or a garage, your other structures coverage limit may need to increase.
While these may seem like small adjustments, they can be the difference between being adequately insured or underinsured.
Are there other situations I may need to talk to my agent about?
Besides major home improvements, there are other reasons to talk to your agent. Many homebuyers typically think once they buy their home, and get insurance, they’re done.
But there are actually lots of other changes that may need to be discussed with your independent agent to make sure your homeowners insurance policy is up to date.
Examples of these changes may include:
- Changes to who is living in the home
- Changes to how much time you spend in the home throughout the year
- Upgrading the contents of your home
- Installing an automatic sprinkler system
- Installing a home security system
- Adopting a dog
- Starting a home-based business
Another aspect of your home that may change over time is the contents inside. It’s a good idea to keep an up-to-date home inventory to document the items in your home. Several free apps can help you capture the information quickly.
As your home and family change, tell your agent. This will help make sure you still have the best coverages for your home and the loved ones inside.