Many homeowners move forward with remodelling without considering how renovations, home insurance, and increased value and risk all directly affect each other. It’s important to remember that even what seems like insignificant changes can still have an impact on your home’s value, as well as your insurance premiums. That is why we have prepared a useful guide on How Renovations Can Affect Your Home Insurance Policy.
If the renovation is significant there is also the exposures related to the construction period itself and as a result, the insurance companies will apply a construction coverage extension to protect you from these loss exposures.
Renovations affect home insurance because of two main reasons. First, it’s possible that remodels or additions can change the home’s final value. The final value directly correlates with your home’s replacement cost, which is the amount an insurance company pays if your home is lost to a disaster or fire.
It’s also possible that certain types of renovations raise home insurance rates by changing the risk exposures, and potential liability threats. Swimming pools introduce a higher risk of an accident on your property, basement suites add the exposure of another family’s use of your property, changing heating, plumbing, electrical, the roof can result in fundamental underwriting criteria changes.
Additional building value, change in risk criteria and changes in liability exposures are all factors in your premiums and underwriting criteria. Let’s examine in detail some of the more specific types of renovations affecting home insurance rates.
Adding a Workspace or Home Office
Building an addition to accommodate a workspace or home office could be one of the biggest culprits affecting your home insurance. Not only is there the exposure of the construction to facilitate the upgrade; but a home office project has the potential to influence the type of coverage and premiums applicable.
Normal homeowner’s insurance will typically cover business equipment valued somewhere around the $5,000 mark. However, any amount higher than this will require additional coverage.
The home office or business equipment isn’t the only dynamic a homeowner should think about. When customers or clients frequent your property, liability becomes an issue. There are a few potential resolutions to this renovation and home insurance issue.
- You can increase your coverage that exists around business items and property on your current homeowner policy.
- A business policy can be purchased that includes additional options for coverage separate from a homeowner’s policy.
- Some insurance companies offer in-home business insurance plans for some classes of business with a lower price point; usually, because the business operation has lower gross receipts and minimal exposures related to the home. However, these plans also include lower limits.
Adding a Secondary Suite
Home prices are unprecedented across Canada and here in British Columbia particularly. Many homeowners are looking for a mortgage helper to manage their financial obligation.
Adding a basement suite to a home requires significant changes or additions to the electrical and plumbing systems of the home; as well as possibly some structural changes adding or removing walls, reconfiguring rooms, and adding additional access to the suite.
This renovation could lead to drainage issues adding that new exterior door, or potential plumbing breaches or electrical malfunctions. The use of qualified professionals and inspections via the permit process will keep your job on track and done right to mitigate future potential losses.
Once the suite is finished, along with the increase in building value there is the now the additional exposure of another family living within the walls of your home. A second stove, dishwasher, washer and dryer, more bathrooms, more entry points, and another family having people coming and going, basically, a secondary suite is doubling the risk of fire, water, burglary, and liability loss.
Aside from the increase in policy limits with the increase in building value insurance companies will also apply a 2 family or secondary suite surcharge to the policy premium to account for this additional risk.
Upgrading to a Modern Kitchen or Bathroom
Renovations raising home insurance values can occur in any room, but kitchens and bathrooms are typically more expensive. These rooms include higher-priced components and features like solid surface counter tops, additional fixtures, upgraded plumbing and heating and structural changes; that generally lead to larger increases in your home’s rebuilding appraisal price.
The rebuilding cost of a home can directly relate to the other coverages specific to your policy. An increase in building value can result in an increase in your personal property contents limit; which is necessary when a renovation means expensive new appliances for example.
When an event occurs that requires a homeowner to file a claim, the payout of the claim is based on either the value of the house if the house is a total loss and/or the price of the items if the damage is limited to certain valuables and possessions. The more these valuables are worth, the more the claim payout is. It is all relative, a renovation increases the value and as such the policy has higher limits and likely a higher premium.
We mentioned kitchen remodels, pools, basement suites and home offices as renovations affecting home insurance policies. Other reasons include a substantial increase to your home’s square footage; adding a nice deck or patio area, or adding a garage or storage area.
Alternatively, there are several renovations home insurance companies feel may be a reason to lower your price. Let’s explore a few of the upgrades that can end up saving you money on home insurance.
More Beneficial Renovations: Home Insurance Decreases
If you’re a homeowner looking into renovations, these options may lead to savings on your insurance premiums.
- An alarm system
- A leak detection system
- An automatic water shut off
Upgrades that can guarantee preferred rating
- If you replace your roof
- Electrical systems
Renovations indeed affect home building values; as well as how the insurance company views the overall quality of the risk and in turn insurance rates. However, this shouldn’t deter you from making the changes you desire. Contact your insurance agent and find out if certain adjustments can be made regarding the renovation that keeps the price changes to a minimum. It’s also possible to add elements that lower certain policy parts, offsetting rising costs in other areas.
The most important thing to remember is the importance of proper communication with your insurance agent. A good insurance company will communicate efficiently, offering you guidance on How Renovations Can Affect Your Home Insurance Policy and the most efficient ways to formulate your policy to fit your budget.