Does Homeowners Insurance Cover Renovations?
Yes. Homeowner’s insurance will cover many renovations as part of your home. Still, there are a few caveats we should explore. Let’s be sure we’re using the right terms for your home upgrade to be certain we’re answering your question clearly.
Before we get any further, know that a homeowner’s insurance policy will only pay up to the policy limits, less a deductible. Therefore, if your policy is for $200,000, but you’ve spent $100,000 on upgrades to your home, and feel your home is now worth $300,000, your insurance policy will only pay up to the policy limit of $200,000 (minus deductible.) So be sure to keep your insurer apprised of expensive updates.
Will HO Insurance Pay for Random Renovations?
No. Know that homeowner’s insurance is meant to protect your home against losses and emergencies. It does not cover standard maintenance, nor renovations or home upgrades that you choose to do on a whim.
Just like your auto insurance will not pay for new tires and oil changes, a homeowner’s policy will not pay for a new exterior paint job or a new carpet. Those things are part of your standard maintenance costs.
Unless, of course, you need that new paint and carpet because there was a fire and your home was partially burned down.
HO insurance exists to help you repair or rebuild a home after specific perils like fire, lightning, wind, explosion and so on damage your property. If a portion of your home is damaged in a fire, homeowner’s insurance will always cover it (less a deductible, of course.)
What is the difference between home renovation and home remodeling?
The terms “renovation” and “remodeling” are sometimes used interchangeably by homeowners. But insurance professionals know they are different processes. The results may be covered differently on your homeowner’s insurance policy.
- Think of renovations as restoration, or preservation.
- While remodeling projects build something new.
Home renovation projects might include:
- Refinishing cabinets, staircases or woodwork
- Hanging period wallpaper in a historic home
- Restoring hardwood floors
- Rebricking a fireplace and chimney
Remodeling projects could be:
- Tearing down a wall between rooms
- Adding a doorway in a wall
- Adding a new room at the back of the house
- Adding a fireplace and chimney
You don’t need to notify your insurer if you are performing routine maintenance. Standard wear and tear will happen at any home, and insurance agents expect you to be continually caring for your investment.
Things like new carpets, interior or exterior paint, or an occasional new faucet or toilet are not a big deal. You don’t need to let your insurer know every time you perform minor maintenance.
But many home upgrades seem to fall in a grey area between renovation and restoration. For instance, what if you are removing an old fireplace and chimney, and replacing it with a natural gas furnace? This is a remodel that’s important to your insurer because it reduces fire risk to your home. You might find your homeowners insurance premium decreasing.
We’ve said it before, and we cannot seem to say it enough: any time you are spending more than a few thousand dollars on a home improvement, you should let your insurer know.
Tell Your Homeowner’s Insurance Company About Expensive Upgrades
Homeowner’s insurance policies are designed to protect your financial investment in a home against fire, first. Yes, there are other important additions to most HO policies – like liability and burglary – but the policy is built on the concept of fire coverage.
The idea is that you could rebuild a brand-new home – much like the original – and replace all your belongings should the home burn down.
Therefore, if you invest $25,000 in new kitchen cabinets, windows, countertops and flooring – even if these things are simply worn from standard use – you should let your insurer know. You might need more coverage if the value of your home is increasing.
Be sure to provide receipts and photos to your agent, so they can document your upgrades.
On Wiring, Plumbing and Roof Replacements
Of all the thrilling aspects of a home renovation, changes to your plumbing, roofing and wiring are the most boring ideas to a homeowner. But some of these updates can earn you a meaningful discount on your insurance bill.
Tell your insurer about any changes or upgrades to your:
- HVAC system – air conditioners, swamp coolers, new furnaces and so on
- Electrical wiring
- Home security systems – often worth a discount on your insurance premium
- Fire prevention systems or sprinklers – always get you a discount on insurance
- And roofing – many insurers will offer a discount for a few years for homes with a new roof
And remember, if you are making expensive upgrades, save the paperwork! Your insurer wants paper proof that you’ve paid money for these upgrades, as opposed to merely getting a quote.
What About Decks and Porches?
As permanent additions that are attached to your home, decks and porches are covered by homeowner’s insurance.
If, for instance, your neighbor’s home burns down and your deck catches fire and partially burns, it will be covered by your homeowner’s insurance (or by your neighbor’s HO insurance, via a process called subrogation)
Since porches and decks are covered, insurers want to know if you’re adding or upgrading them. Again, any time you make a home improvement worth more than a few thousand dollars, let your insurer know.
On Adding & Renovating Other Structures
We’ve talked a lot about home renovations / remodels. But what about the other structures on your property?
Garages, well houses, workshops and gazebos are all covered by your homeowner’s insurance policy – to a point. That point is usually 10% of your home’s value, unless you specifically work something else out with your insurance agent.
If your home is insured for $150,000, your other structures coverage is usually $15,000. Is that enough to replace all your outer buildings if there was a fire on the property?
Let’s take a closer look at one common property remodel and its complex insurance implications.
Remodeling a Garage to Become a Rental Unit
Garage-to-rental remodels can cost $100,000 in metropolitan areas. Think of the plumbing, HVAC, carpeting, appliances, insulation and so on. That small structure is suddenly worth much more, particularly as it brings you a monthly income.
But rentals also bring liability risks as well. Your tenant might slip and fall on an icy night, or accidentally start a fire at the stove. Therefore, garage-to-rental remodels should be insured with a landlord protector’s policy. It protects the structure against perils like fire, and protects the property owner against liability, should a tenant ever try to sue.
If you’re remodeling a garage to become a guest house or rental, let your insurer know.