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Home Remodel and Home Insurance – Step by Step Guide

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Table of Contents

Homeowner’s insurance protects your home from covered risks. However, it’s important to realize that your insurance terms could change during the process of a home remodel. Even when your home is properly insured, and your contractors have the appropriate coverage, your insurance could have gaps during the renovation.

What Is a Major Renovation?

Not every renovation requires a huge budget. Not every house goes through major changes due to a minor renovation. Suppose you own a luxury home (a home with a replacement value of at least $1 million) or have renovations completed that require renovations to live elsewhere. In that case, 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 Renovations

There 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 Renovations

Your 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 the 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:

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  • 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 Renovation

Understanding 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 builder’s risk insurance.

Renovation Insurance

construction workers talking to hom insurance policy holder about unforeseen problems
A construction worker on the phone at the site.

Some 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 Policy

These 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 is unoccupied.

Changes Necessary to Maintain Insurance

Your 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 Coverage

Your 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.

Builder’s Risk Insurance

Builder’s risk insurance coverage can provide protection without altering your homeowner’s policy. The coverage covers only the property or personal property, liability, loss of use, and other coverages if needed. Sometimes two or three policies provide proper coverage in this situation. However, it is a viable way to prevent insurance gaps during renovations.

Home Remodel and Home Insurance FAQs

Will all remodels affect my home insurance coverage?

Not necessarily. Small renovations or repairs that don’t require you to leave home or substantially increase the value of your home may not affect coverage. However, construction projects can be unpredictable, and prices of building supplies change frequently. It’s always a good idea to get in touch with your insurance agent before you begin a project to discuss the details and ensure you won’t experience any gaps in coverage.

Should my contractor have insurance?

Yes. Anyone working on your property should have insurance coverage. Before hiring a contractor, it’s crucial that you see proof of liability coverage as well as worker’s compensation coverage. Without these policies, you may be liable if someone gets injured on your property.

Will my insurance premiums increase after the renovation is complete?

Possibly. Some renovations that significantly alter your home could increase its value and increase your premiums to ensure you’re adequately covered. For instance, renovations that increase your living space (like a room addition) or those that add high-value materials (like marble countertops) could increase your premium. Conversely, renovations that make your home safer (like a sturdier roof or updates to plumbing and electrical systems) could decrease your monthly premiums because your risks decrease.

Will outdoor renovations affect my insurance?

Sometimes. Your homeowner’s insurance policy covers the property surrounding your home. Therefore, pricey renovations to your outdoor space can increase your property risk and increase the value of your property. If the value of your renovation is worth more than a few thousand dollars, or you’re installing items that might have liability concerns (like a pool, hot tub, fire pit, or outdoor playground), you might need extra coverage.

Will building a home office for remote work affect my homeowner’s insurance?

Many variables can change your coverage for remote work based on your employer and your specific situation. For instance, if you renovate an existing room in your home to create an office, your homeowner’s insurance may not be affected. However, building a new room could change your policy and coverage while the remodel occurs. As a full-time employee for a company, certain coverage might also be supplied by your employer. If you are transitioning to remote work, you should talk to your insurance agent to see how your coverage will be affected and ensure no gaps exist.

Learn More About Home Remodeling and Home Insurance Protection

If you’re planning a renovation to your home, it’s crucial that you speak with your insurance agent to ensure you have the coverage you need. For more information about homeowner’s insurance and the gaps you may experience during renovation, get in touch with the LoPriore Insurance team today. Our experienced agents can answer your questions, provide a quick quote, or help you find the insurance policy you need. Planning ahead can save you from the painful process of planning how to pay for losses that occur when you’re underinsured.

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