Planning a home renovation involves fun activities such as designing a new floor plan and picking colors and finishes. Having a conversation with your insurance agent about the changes you plan to make is an essential step in the process, but it is often forgotten. Home renovations can increase your home’s value, meaning your current home insurance coverage may become inadequate, leaving you vulnerable to potential losses. Additionally, certain improvements (such as adding a water leak detection system or Class 4 roof) can often help you qualify for lower premiums. Below are five home renovations that could potentially affect your home insurance policy.
1. Installing a New Roof
Installing a new roof can save you money over the long term since a new roof can help prevent expensive roof repairs or leaks. A new roof can also help cut your home insurance premiums by 10 to 20 percent, as the roof is typically the single most significant factor that can affect your policy premiums. Many insurance companies will offer a significant discount if you use stronger roofing materials that are resistant to leaks, hail, and wind. Before installing the new roof, discuss with your insurance agent so they can explain whether you qualify for a discount. While a new roof can reduce premiums, it could also increase your property value which means you could need more coverage.
2. Building a Pool
Building a pool might make your home popular in summer, but it also increases potential liability risk. When people are running around the pool having fun, the chance of an accident occurring on your property increases. If a person does get hurt, they could hold you responsible for any damages, which increases your need for personal liability (or umbrella) protection. Your insurance premium will likely increase after installing a pool, possibly significantly so.
Some insurers will ask you to install a self-locking fence around the pool to reduce the cost of insuring the pool, and other protective and aesthetic measures may also be required by your insurance company or your municipal or state laws, or your homeowners association bylaws, if applicable. For example, before installing a diving board or slide, be sure that you understand the impact it would have on your insurance premiums, or whether your insurance company will insure those risks at all.
Your homeowner’s insurance coverage amount will also likely need to increase to compensate for the value of the pool. While adding a pool can add to your home’s value, the costs of installation, ongoing maintenance and cleaning, and increased insurance results in a negative overall financial outcome in many instances, so be sure that the increase it brings to your quality of life is worth the additional costs and potential headaches.
3. Increasing Living Space
As your family grows, your home may need to grow as well to accommodate your family. You can add living space by either finishing the basement or converting the garage into a livable space. Building a new addition such as a second-story bedroom or expanding the living room increases the square footage of livable space, hence your insurance usually has to be altered to account for the value of the new space. If you plan on renting out the new space, you may also need landlord insurance coverage.
4. Kitchen and Bathroom Renovations
Many homeowners will turn to the kitchen and the bathroom when upgrading their homes. They may want to turn their kitchen into a chef’s dream and their bathroom into a spa. While most homeowners will realize that these upgrades increase their home’s value, they may not know to notify their insurance agent to increase their coverage accordingly. If you undertake a remodel with upgraded countertops, new appliances, and new flooring, ensure that your insurance coverage is revised so that you have sufficient coverage in case of an accident. You can also ask your insurance agent if you qualify for a discount if you upgrade the plumbing and electrical wiring. These upgrades can reduce the chances of flooding and fires, hence reducing your premium.
5. Adding a Deck
A deck can be the social center of your home, especially in summer, but having one installed can affect your insurance policy. Adding a deck can increase your home’s value, and it can also increase risk, especially if it is attached to the second story. You should check with your insurance agent to determine what revisions may need to be made to your homeowners policy after adding a deck because your current insurance policy might not be sufficient to cover the loss in the event of damage or total destruction, or potential liability risk due to a second-story fall. As your property value goes up, so does your need for homeowners insurance coverage, meaning you have to pay higher premiums.
If you are considering having some work done in your home, talk to your insurance agent first to help you understand how the renovations might affect your insurance policy. They will help you make the most of your discounts while still ensuring your home is adequately insured.
Strategic Financial Planning encourages clients to work with an independent insurance agent who can shop for coverage from many different carriers and who can be a resource for questions such as home renovations or potential claims scenarios. Finding an agent who is not captive to one insurance company and who takes a consultative approach can save you many thousands of dollars over the years both in premiums paid and by helping you avoid costly mistakes. Whether you feel your insurance policies just need a reevaluation or you want a complete overhaul, we can help you find appropriate coverage at the best possible price. As a fee-only financial planning firm, Strategic Financial Planning does not sell insurance or collect commissions, nor do we receive referral fees or other third-party compensation of any kind from insurance agents or anyone else, but we can direct you independent agents who can help. When you are ready, please contact us via email or phone (972-403-1234).
This content is developed from sources believed to be providing accurate information and is provided by Strategic Financial Planning. The opinions expressed and material provided are for general information only. Please consult insurance professionals for specific information regarding your individual situation.