Remodeling? Add this to your checklist!
Ah, the joys of a beautiful remodel! We all love to dream of the gorgeous new countertops and up-to-the minute appliances, but there’s another facet in home remodeling that many of us just plain ignore. Renovation Roadmap contributor Nathan Barber helps you understand why you need to add “home insurance” to your renovation checklist!
Home renovations are a great way to increase your home’s value. With this increase in value, you need to be aware of how to cover it through your home insurance if it was ever destroyed by a disaster. No-one wants to update their home to find they have a gap in coverage and be left to pay the difference out of pocket.
Here are some examples when you need to update your home insurance policy.
I. Square Footage
Many home upgrade projects will add square footage to your home. Since part of your policy covers the square footage, any upgrade will require a policy update. This will prevent your home insurance from covering less than the market value.
Adding a mother-in-law unit or a new deck creates new factors to cover under the policy. Your insurer will need to know about any upgrades along these lines to make sure your policy reflects the change. It’s a good idea to let your agent know about any home upgrade project BEFORE you start so you have a clear idea of the insurance change. While you have them on the phone, ask them if you need to add insurance to your policy to cover you during the renovation process.
III. Building Materials
High quality building materials are more expensive to cover than standard materials. They can raise your home’s replacement value. Keep receipts of the materials used. This will make it easy to prove the costs for your insurance agent.
IV. Household items
Adding new appliances, fixtures or other new items will add to the value of your home. How you decide to insure those items will define the cost of your premium increase. Two factors you should know about here are actual cash value and replacement cost.
Actual cash value is the cost of the item minus current market depreciation. If you have a stove that cost $600 two years ago that is now valued at $400, the payout from your agency would be $400.
Replacement value, on the other hand, would pay out the full $600. While this is a good financial deal, this level of protection also increases the cost of your premium. Remodeling Magazine’s Cost vs. Value 2018 report shows the national average for a mid-range kitchen remodel is now almost $64,000. If your project is on the low end, you can save on your premium with actual cash value coverage. If it’s towards the high end, you’re better off going with replacement cost value. The difference in ACV and replacement cost can be immense so it is best to fully understand your policy.
V. Liability Coverage
Home upgrades like a pool or hot tub can bring a lot of fun to a home, but they also come with risks. Make sure you have the right amount of liability coverage in case of an injury.
Basic liability coverage is $100,000. While this may seem like a lot, medical bills and legal fees that follow a liability incident can run through that amount fast. You’re better off increasing your liability to $500,000. The added coverage is normally only about $25 a year, so it doesn’t cost much for peace of mind. Should you decide to look at coverage over $500,000, consider an umbrella policy. This will provide the extra coverage you need.
Putting on a new roof is a great way to save on premiums. Consult your roofing company beforehand; they’ll be able to recommend the most damage-resistant materials. The UL 2218 classification system rates impact resistance for roofs from 1 to 4, 4 being the most resistant. Class 4 materials can give you a 20-35% annual discount on your policy.
VII. Plumbing and Electrical
The US Fire Administration states there are an average of 28,600 electrical fires every year. A home upgrade is an excellent time to update electrical wiring and plumbing systems. Old plumbing and electrical are the prime cause of home insurance claims. Upgrading these systems, on top of reducing risks, can save you 10% on your annual insurance premiums.
These are just some of the specific cases in which you should plan to adjust your homeowner’s policy. Whenever you’re considering a home renovation, contact your insurance agent and see what they can offer you to give you the most benefit.
Got your insurance covered and ready to tackle that remodel? Find out how the Renovation Roadmap can help you get on track!