Are Home Insurance rates affected by remodeling

How remodeling can impact home insurance rates

60% of US homes are under-insured by an average of 20%, often due to work being carried out around the house that wasn’t there when the home insurance policy was first started.

More worryingly, 56% of people believe that their home insurance covers more than it does, such as flood insurance on a standard homeowners policy.

It’s easy to forget about home insurance when you’re focused on renovations, but these changes can affect your rates. Some changes will add value to your home and will increase your insurance rates, purely because your insurance looks at the worst-case scenario of the cost of rebuilding your home.

Other changes can reduce premiums, usually, if they make your home safer, such as a smoke detector, which can save around 5-8%.  So, it’s worth knowing how your rates will be influenced.

Extending your home

Carrying out work around the house seems never-ending, there’s always something that needs doing or something that you want to change and update to suit your needs and style better.

Extending your home, even if it’s adding one room, will increase your home insurance purely because you’re adding value and square footage, which will cost the insurance company more if your home needs rebuilding.

Ideally, you need to tell your home insurer that you’re carrying out the work as soon as you hire a builder and get a permit so that if anything goes wrong during the build, such as a fire, it’s covered by your insurance and your money hasn’t gone to waste.

Once your extension is completed, your contents insurance, which may be included in your home insurance, will also increase as you likely purchase more possessions to go in your new room, such as furniture.

Converting a once uninhabitable space

The conversion of an uninhabitable area, such as a garage, loft or shed, into a habitable, livable and enjoyable space is one of the easiest ways to increase your home’s value. Some home insurance may already cover the area you want to convert, so it’s unlikely your insurance rate will change, but it’s worth looking into.

Depending on the area you’re converting and what it will be used for may affect other insurance policies. If you’re no longer going to keep your car in the garage, then your motor insurance is likely to increase as it’s considered risky to have it parked on the road. If you’re converting the space into an annex or apartment that will be rented out, even if it’s to a relative, you’ll need to consider landlord insurance too.

Landlord insurance isn’t a legal requirement, but it’s a good idea as it will cover vandalism, fire, and floods and gives you public liability coverage if a tenant injures themselves on your property.

running a business from your home

Adding an office or workspace

The US Census Bureau found that 52% of the 28 million small businesses in America are home-based, making the need for a home office very desirable. The International Communications Research has found that 60% of home-based business owners don’t have adequate insurance.

Whether you’re adding an extension for a home office or you’re converting a current room into one, running your business from home can mean business insurance needs adding on to your home policy. The number of people visiting your home that are business related can also affect your personal liability.

The cheapest way to add your home-based business to your policy is to have an add-on that can cost as little as $100 a year. A more expensive home insurance policy may be required if you have company property needing coverage, such as a computer, printer and a smartphone, and so forth.

Carrying out renovations

A survey by Houzz found that Americans spent $60,400 on renovating their home in 2016. Renovating your house to keep it up-to-date with current styles or put in features that you’ve always wanted will usually add value to your home. Whether you’re installing a new kitchen with Quartz countertops, a modern bathroom with the whirlpool bath you’ve always wanted or you’re purchasing new furniture made from solid oak, these investments will make your home how you’ve always envisioned it, but they will also increase your home insurance rates.

The average kitchen renovation costs $19,100, making it quite the investment, so you’ll want to ensure it's covered by your insurance. The increase in coverage is down to the increased value of your home and its contents, which would cost the insurance company more to replace in the event of a disaster.

Add a swimming pool

Owning a swimming pool can add a big chunk of value to your home, meaning it will raise your insurance. Depending on if you opt for an in-ground or above ground pool can make a difference to how your insurer will cover it.

In-ground pools are usually considered external structures and will need to be declared and listed on your policy. Most policies cover up to 10% of the cost to replace external structures and with in-ground pools costing around $40,000 to install. This may not be enough, so additional coverage would need to be included.

To add an in-ground pool to your home, insurance adds around $50 to your premium. Insuring above ground pools differs because they are considered personal property, as they can be dismantled and are portable. Most home insurers cover personal property up to 75% of the replacement cost value of your home, which is usually more than enough to cover your swimming pool. However, some home insurance companies will have a limit on claims for pools, so it’s important to check this and have it covered in a separate policy if needed.

Swimming pools and liability insurance

If you have chosen to add a swimming pool to your home, you will need to have good liability insurance. Swimming pools are deemed an attractive nuisance when it comes to insuring them, as they can tempt children to go in them, whether they have permission or not.

The Centre for Injury Research And Policy reports that more than 1000 children drown in swimming pools every year with many more getting injured. Liability insurance will cover any lawsuits and medical costs due to pool-related injuries or deaths.

Home insurance policies can include liability insurance and usually offer $100,000 of cover, but the costs of an injury or death can far exceed this, so it’s best to increase coverage to at least $500,000 recommended for swimming pools. It’s essential to comply with laws and your local municipality, or your insurer can void your swimming pool cover. This commonly includes maintenance, enclosing the pool, yard or both with a fence and not installing slides or diving boards as these can all increase the risk of injuries, death, and damages.

Home insurance and remodeling
Add an alarm for a lower rate

Adding safety features to your home can mean a lower premium for your home insurance. An alarm system that is monitored can reduce your home insurance premium by up to 20%.  It can also reduce your chances of facing a burglary in the first place, with homes without alarms having a three times higher chance of being burglarized.

The FBI has reported that a robbery happens every 15 seconds in the US, and insurance companies recognize the importance of a monitored alarm system in reducing the risk so will usually give you a cheaper rate for having one.

Remove fire risks

You can make your home safer by updating or removing risky features, like having your home rewired or replacing an open fire to reduce the risk of a house fire. Open fires can pose serious fire risks, along with burns to young family members and pets and the chance of ruined flooring with embers flying out of them.

16% of house fires in America are caused by home heating, with unattended flames being the main culprit. Replacing these with a wall mounted fireplace is a safe option that will still provide warmth and the cozy appearance of fire. Wall mounted fireplaces are a lot easier to maintain and run when compared to an open fireplace and your home insurer will recognize the reduced risk of fire, meaning your rates will decrease too.

Renovating your home to get it to match the image in your mind is usually an exciting, yet stressful time, with most of your efforts going into the different aspects of your project. It’s all too easy to forget about your home insurance during this process, but it’s essential to check and update your policy as your home evolves. This will mean your renovations are protected and your work, time and money don’t go to waste if the worst was to happen. Your home insurer is there to protect your home after all and will quickly cover your living expenses and the cost of rebuilding your home exactly how you had it, assuming you covered it correctly.

About the Author

John Espenschied is a long-time veteran of the insurance industry. He has worked in various positions within the industry for over 20 years, and for the past 15 years, he has been the owner and operator of Insurance Brokers Group, an independent insurance agency. John loves advising people on the insurance that meets their needs and goals, whether it be for personal or commercial purposes.

John is married to Melissa, and they have three children together, as well as three grandchildren. In his spare time, John enjoys golfing and playing in the golf league, biking to their local brewery along the Missouri river, and going on motorcycle rides when the weather is nice.

John Espenschied

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