COVID-19 has forced most of us to spend more time at home than normal. And chances are that the more time you’ve spent in your space, the more time you’ve had to reevaluate how you want to utilize it. But no matter the changes you have in mind — be it redesigning the kitchen or installing a swimming pool in your backyard — you should know that significant renovations will affect your home insurance rates.
Home insurance companies base your premiums on many factors, but one of the most significant is the replacement value of your home. If, for instance, your house was to catch fire and burn down, your insurance company needs to know how much it would cost to build a new one.
When you renovate your home, you increase its value. As it gets more expensive to replace, your home insurance premiums may rise as well. Not all renovations result in an increase, however, which is why it pays to know what you’re getting yourself into before you start tearing the drywall apart.
Here are five popular renovation projects and how they can impact your home insurance rates.
1. Upgrading Your Kitchen
Depending on its size and scope, a major renovation like designing and renovating the kitchen of your dreams can increase your home’s replacement value, which means your home insurance rates are likely to rise, too.
When renovating your house, the general rule is that you should notify your insurance agent if you intend to make any changes to your home worth $5,000 or more before you start. Your original insurance policy accounts for your old kitchen, so if you decide to spend a big chunk of money on renovating it, then your insurance company will need to reassess your policy to cover those additions.
Make sure you have the right amount of coverage and that you keep your policy up to date. That way, should anything happen, such as your contractor damaging your property during the renovation, you’ll be able to file a claim and receive compensation for the damage.
2. Adding an Office Space
Working from home due to the pandemic? In most cases, your employer’s commercial insurance policy covers company-owned equipment, like a laptop or external keyboard, so you won’t need to make any changes to your individual home insurance policy.
But if you’re a business owner who is adding advanced equipment or extending a room in your house to accommodate expensive materials or inventory, your existing coverage may not be adequate. You might be able to add an endorsement to your current homeowner’s policy to increase the dollar amount of coverage, resulting in a higher premium. That said, a homeowner’s insurance policy won’t cover business-related liability. You will need to supplement your current policy or buy a new separate commercial policy.
The amount of home insurance you buy should represent the value of your contents, so keep track of what you have and what it’s worth. Additional insurance will also cover any extra square footage introduced to extend your space. It’s better to be secure and purchase extra coverage.
3. Refurbishing Your Basement
If you’ve decided to splurge on renovating your basement, that could contribute to your premiums increasing as well.
Your home insurance company needs to know if you have a finished basement because if you do, it will cost more to replace in the event it is damaged. There’s a risk factor with furnished basements, particularly when it comes to water and sewer backup, for this type of renovation, so you could see the cost of your premiums rise for the additional risk. According to 2018 data from the Insurance Bureau of Canada, the average cost to repair and replace a flooded basement is $43,000. That’s why having adequate coverage is crucial.
Keep in mind, too, that certain renovations can cause your insurance coverage to lapse. For example, if the improvements include structural modifications or if there will be periods of time where you have exposed walls, plumbing, or electrical wires, your home can be listed as “under construction” and thus excluded from standard home insurance coverage.
4. Building a Swimming Pool
Summer is coming and a swimming pool may feel like the best way to beat the hot weather we wait around for all winter. There are many benefits to adding a pool to your home but again, expect to pay higher premiums if you do — especially if you don’t live in a region where pools are commonplace.
From an insurance standpoint, having a pool might put your home in the high-risk category. That’s because swimming pools can have an increased risk of liability, with people injuring themselves or drowning. If the pool has a diving board or a slide, it will almost certainly be considered a higher risk.
Liability coverage is typically included with a traditional homeowners insurance policy and is intended to protect you in the event that anyone is injured on your property. Some insurance companies may refuse to insure the risk of a pool altogether, while others may accept it but advise you to purchase more liability coverage than what is normally recommended. When the pool is not in operation, your insurance provider can also require you to add a locking fence around the pool or a locking cover to go over the water to prevent injuries from happening.
5. Replacing Your Roof
We’ve mostly covered what renovations increase your home insurance rates, but here’s some good news: some home renovations can decrease the price you pay.
Generally speaking, any repairs, maintenance, or upgrades that make your home safer can help lower your home insurance premiums. While most homeowners insurance policies cover roofs, some insurance companies use depreciation schedules, based on the roof’s age, to decide how much coverage you get. For example, as an older home’s roof starts to deteriorate, it becomes more vulnerable to problems like leaks and water damage. As such, it depreciates in value and you may not get as much money from your insurance company to replace it if you were to make a claim.
However, if you make renovations and upgrades to your roof, you could save on your home insurance premiums because the risk is now less to the insurance company.
If you live in a storm, wind, or hail-prone area and your new roof has special loss-mitigation features like hurricane straps, waterproofing, or impact-resistant shingles, you might be eligible for even bigger discounts.
The thing to remember is that every renovation scenario is unique. But what they all have in common is that they will impact your home insurance rates in some way. That’s why it’s in your best interest to contact your insurance broker or company to learn more about the consequences of home renovations on your insurance coverage.
