How home renovations impact your homeowners insurance premiums

U.S. homeowners are taking on home renovations during the pandemic, fortified by increased savings and an environment of low interest rates. According to a Bank of America survey, 70% of Americans decided to take on home improvement projects last year with more projects planned for 2021.

"With the pandemic, we have seen an increase in homeowners using our projects tracking features," said John Bodrozic, co-founder of Home Zada, a homeownership data analysis platform. "The most common projects are kitchen and bathroom renovations which fall into a major home improvement. The next level of projects are more of flooring and painting projects which fall into minor level renovations."

Does homeowners insurance cover renovations?

Many home improvement projects will face a home insurance coverage obstacle.

"Most renovations are not covered by home insurance," Bodrozic said. "This is due to the fact that most policies are structured around dwelling coverage to rebuild a home and contents coverage for your personal property. Usually the homeowner needs to have documentation that something unforeseen happened to cause damage in order to make a claim on the home insurance."

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What home renovations can make homeowners insurance go up?

According to Amin Eskooch, CEO and co-founder of WiiBid Solutions, a home renovation refinancing company, the determination on how renovation projects can sway your homeowners insurance costs are based on a "risk perspective" and that homeowners do need "to consider if the renovation increases or decreases the risk or liability to the insurance company."

Here’s how Eskooch breaks down renovation projects and their impact on insurance premiums:

Home renovations that increase your home insurance (increased risk and liability):

1. Building a pool - Anything involving water is a risk to insurance companies from multiple liability perspectives.
2. Adding an office - This has the potential to translate into increased home foot traffic.
3. Expanding new space - Adding a sunroom, for example, will increase your property square footage, which means an increased possibility to getting exposed to property damage.
4. Kitchen upgrades - Potential appliance replacement costs can increase your premiums related to personal property and dwelling coverage.

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Home renovations that decrease your home insurance (reduced risk and liability):

1. Changing the roof
2. Installing basement insulation
3. Redoing/rebuilding the deck
4. Structural improvements, like installing better security features or adding new flooring and/or windows.

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Home insurance tips to apply for big residential renovation projects

Take these steps when linking your homeowners insurance policy with your home improvement project.

1. Make builders insurance an option

There’s a special policy called "builders risk insurance" that you get when performing construction on a property. "If you are simply repainting and doing new flooring, then a builders risk policy may not be necessary," said Bill Samuel, a residential real estate developer at Blue Ladder Development in Chicago. "If you are doing a major remodel, then a builder’s policy may be something you should ask your agent about."

Just expect to pay more for builders risk insurance than you would a basic home insurance policy, Samuel added. "Builders risk policies are generally double the cost of a regular policy," he said.

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2. Ask for a written statement from a contractor during the initial consultation

Get your insurance company on board early, and save some money in the process.

"Have your contractor point out current deficiencies in the home and how the proposed renovation can improve living conditions and prevent costly repairs down the road," said James Surrey, founder of Review Home Warranties, a home warranty review platform. "Send the written statement to your insurance provider for review. The idea is that renovations will correct existing structural issues and reduce the probability of the homeowner filing a claim to foot the cost of repairs."

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3. Sell the liability issue

Home renovations mean updating a part of the home that's outdated and would likely require major repairs sooner than later. "Renovations essentially make your home less of a liability for the insurance provider," Surrey said. "If the remodeling gets the home up to modern standards, the provider may be willing to lower your monthly premium or deductible."

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