Step by Step Guide to Home Remodeling and Home Insurance Protection
What Is a Major Renovation?Not every renovation requires a huge budget, and not every house goes through major changes due to a minor renovation. If you own a luxury home (a home with a replacement value of at least $1 million) or are having renovations completed that requires you to live elsewhere, your standard homeowner’s insurance could be affected. The reasons for these changes are the potential for increased risks to your home. Construction is a major renovation if your project includes:
- An unoccupied home
- 10% replacement value or $500,000, whichever is less
Increased Risks Due to Home RenovationsThere are reasons your home insurance has exclusions that limit coverage during the renovation process. Your home faces considerable risks while unoccupied and under construction. Here are a few factors that increase your risk of loss during a major renovation.
- Vacant luxury homes are at increased risk for vandalism, unlawful entry and unauthorized use, and theft of building supplies.
- Increased foot traffic from the building team leads to greater liability risks as the potential for injury on the property increases.
- Construction requires powerful tools that could cause damage to the home.
- While your contractors have policies that should provide coverage in the event of a mistake, it’s important to ensure you have limits that protect you against builders’ errors.
How Your Homeowners Policy Limits Coverage for Major RenovationsYour homeowner’s policy protects your primary residence while it’s occupied by you and your family. The prices of your premiums and available discounts are more affordable for this reason. Most homes don’t require major renovations or extended absence of the owner. To ensure homeowner’s insurance remains affordable, your policy includes terms that exclude coverage for losses that occur during major renovations. Some examples of these exclusions include:
- A denial of coverage due to the fact your home isn’t occupied: Most home insurance policies describe your home or “residence dwelling” as a “one-family dwelling where you reside”. Since you’re residing somewhere else while construction is being completed, it can be argued that you don’t reside in the home.
- Terms that deny full replacement value or increase deductibles during renovations: Policies that include these exclusions state that while a home is unoccupied during renovations, or renovations surpass 10% of the home’s replacement value or $500,000, coverage will be adjusted if the insurance company isn’t notified beforehand. These adjustments could mean you can only get the replacement cost minus depreciation and/or a construction deductible (5% of the dwelling limit) applies in the event of a claim.
Coverage Options to Protect Your Home During a Major RenovationUnderstanding you may have gaps in your insurance coverage is an important step toward getting the right coverage. Luckily, you do have options to help you ensure your home is protected against increased risks during the process. These options include making temporary changes to your homeowner’s policy or purchasing builders risk insurance.
Renovation InsuranceSome insurance companies have options that will allow you to add renovation insurance to your standard homeowner’s insurance policy. While this option offers excellent coverage, there are some conditions to consider. Changes in the cost of your policy, changes in your activities, and changes to your coverage may be necessary. These charges only apply while the home is under construction.
Changes in the Cost of Your PolicyThese changes apply to a homeowner’s policy during renovations.
- Premium credits and discounts are revoked during construction.
- The policy transitions to a new rating tier designed for homes under renovation.
- A vacancy surcharge is included if the home in unoccupied.
Changes Necessary to Maintain InsuranceYour home insurance providers may require you to comply with certain strategies to prevent risk.
- You must obtain a certificate of insurance (COI) from your contractor with you listed as an additional insured.
- Verify the general contractor’s coverage is at least $1 million per occurrence.
- Fire extinguishers every 1,000 square feet inside the home.
- Place “No smoking” signs in work areas.
- Install temporary fire alarm and burglar systems.
- Have pre and post inspections of the home completed.
- Place flammable materials in a fireproof cabinet.
- Install temporary night lighting.
- Add a driveway chain or perimeter fencing.
- Install video surveillance cameras.
- Hire a 24-hour security guard.
Changes in Your Home Insurance CoverageYour insurer may alter your coverage during the renovation.
- Guaranteed replacement cost changes to conditional replacement. This limits the coverage to the limits of the policy.
- The standard deductible increases during construction.