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Will Renovations Impact My Homeowners Insurance?

Zina Kumok5-Minute Read
May 10, 2021

Home renovation projects with a high return on investment (ROI) are a win-win. Not only do you get to enjoy an upgrade on your home, like a new deck or remodeled kitchen, but you also get to recoup much of the costs when you sell it.

But one lesser-known drawback to home renovation projects is the subsequent need for more homeowners insurance coverage. Here's when a home project could make your homeowners insurance premiums go up – and when it could actually have the opposite effect.

Why Do Home Renovations Impact Homeowners Insurance?

When you buy a house, you're required to purchase homeowners insurance to protect the home from fire, tropical storm and other natural disaster damages. The amount of coverage you need to buy depends on how much it would cost to replace or repair the home. The more coverage you have, the more expensive your monthly premiums will be.

If you complete a home remodel or improvement project that increases the total replacement or repair cost for the home, you’ll have to upgrade your homeowners insurance. If you neglected to do this and then experienced a major catastrophe, the insurance provider wouldn’t pay out enough money to cover the repair costs. You would then have to pay for the difference out of pocket.

On the other hand, if you finish a project that reduces the odds of a fire, flood or burglary, your premiums may drop because the risk is lower. To find out how a project will affect your monthly premiums, contact your insurance agent. They can explain what kind of impact your renovations might have.

Projects That Increase Your Homeowners Insurance Rate

Here are the most common projects that will boost your homeowners premiums:

Adding A Pool

Constructing a pool adds more liability to your home, because there’s a higher risk of medical and legal expenses from an accident. To compensate, you can either add more liability coverage on your current homeowners insurance or purchase a separate liability policy from the same or different insurance company.

Even adding a hot tub can increase your homeowners coverage, since it also affects the chances of an accident occurring on the property.

Starting A Business In Your Home

During the COVID-19 pandemic, millions of Americans started working from home – and many will keep working there even when it’s safe to return to the office. For professionals who invite other people into their homes, like fitness instructors or massage therapists, adding office space could require extra insurance.

If you work with people directly in your home, you should purchase extra liability coverage in case of an accident. Your homeowners policy only covers family members and guests, not customers or co-workers. If a customer falls down the stairs, business coverage will protect you if they sue.

Adding More Space

Adding another bedroom or finishing an attic can yield hundreds of feet in extra square footage, but it also increases your home’s replacement value. A finished basement, extra bedroom, new deck or completed attic is more expensive to replace, which means you’ll need to upgrade your homeowners coverage.

Homeowners should purchase extra coverage as soon as they start building a new addition, even if the project takes months to complete. If an accident happens that affects the remodel, you won’t be able to file a claim on the new area if you don’t have coverage for it.

Luxury Remodeling Projects

When you redo a kitchen or bathroom, it’s usually not necessary to increase your homeowners coverage. If a pipe bursts and ruins your new kitchen floors, your insurance will pay for new floors if the replacement cost is similar to the original flooring.

But if you used custom tile made in Italy, then the replacement cost is more than what your insurance company initially calculated when you purchased the policy.

In this case, they’ll only pay to restore the floors back to the original quality, and you’ll have to pay for the difference out of pocket. Contact the insurance company when you finish a remodel to see if you need to up your coverage.

Adding Solar Panels

While adding solar panels can reduce your monthly electric bill, they may increase your monthly homeowners premiums. Repairing damage to solar panels can be expensive. You don’t need to purchase separate insurance specifically for the solar panels, but your insurance company does need to add them to your policy.

Projects That Lower Your Homeowners Insurance Rate

Not all renovations require an increase in coverage. These home improvement tasks will actually decrease your homeowners insurance premiums:

Adding A Security System

Making your home safer will reduce the possibility of a burglary, allowing you to save 2% – 10% on premiums. This depends on whether you add a traditional security system or a modern, app-based option with self-monitoring. In some cases, you can only receive a discount if the system includes professional monitoring.

To get the discount, send a copy of the security system installation or proof of your monitoring service to the insurance company.

Updating Your Electrical

Many homeowners are familiar with knob and tube wiring, an outdated electrical system that’s still found in many homes built before the 1940s. This type of wiring can contribute to electrical fires, so replacing it with a modern system can reduce the insurance premiums.

In some cases, insurance companies won't even sell coverage if the home has knob and tube wiring in poor condition.

Installing A New HVAC Unit

An outdated or antiquated HVAC or furnace can lead to electrical problems that can cause a house fire. Contact your insurance company when you replace the furnace or HVAC to see if you qualify for a discount.

Replacing Your Roof

An old roof is prone to leaks, which can cause damage throughout the rest of your home. Replacing or repairing your leaky roof can minimize that damage, which will reduce the amount the insurance company shells out in the event of a major storm.

If you recently replaced your roof, you may be eligible for a 5% – 35% discount on homeowners insurance. Call the company and ask if this applies to you.

Establishing Wind Or Hail Resistant Features

Features that reduce the likelihood of roof or siding damage during a storm can also reduce your homeowners insurance premiums. This includes adding new windows that are less likely to leak, fixing holes in the siding and installing a metal garage door.

Adding Smart Home Devices

Smart thermostats, lights, locks and detectors are some of the most popular trends for tech-savvy homeowners. While most know that they can provide hundreds in savings on utility bills, they can also save money when it comes to homeowners insurance.

Water shutoff devices can detect when a leak has sprung and can shut off the water valve, preventing major flooding.

Should You Increase Your Homeowners Insurance?

No one likes to spend more money than they have to, especially on insurance they might never collect on. But consider the alternative: if you don’t increase your homeowners coverage and a disaster happens, you’ll have less money than you need to cover the damages.

If the insurance company offers a steeper rate than you expected, contact a few other companies for a quote. Most homeowners can save money by bundling car and life insurance with their homeowners policy.

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Zina Kumok

Zina Kumok is a freelance writer specializing in personal finance. A Certified Financial Health Counselor and Student Loan Counselor, she also works as a money coach helping people one-on-one at Conscious Coins. She has been featured in Lifehacker, DailyWorth and Time. She paid off $28,000 worth of student loans in three years.