Homeowners might choose to renovate to create more living space, update their home’s design or even put in a pool. Whatever the reason, homeowners may want to consider if their renovations could impact their home insurance policy. Some renovations may prompt you to adjust your coverage types or limits, while others may actually save you money on your insurance premium. Bankrate’s insurance editorial team explores how seven popular home renovations may impact your home insurance rates.
Renovations that increase home insurance rates
A home renovation may increase the value of your home, but it can also drive up the cost of your home insurance. In addition to the expense of the renovation, you may see higher premiums if your renovation pushes you to increase your coverage limits or exposes you to greater liability.
1. Building a swimming pool
In certain locations, adding a pool to your home can increase its value and offer an incentive to would-be buyers. However, a swimming pool is considered an “attractive nuisance” (especially if it has a diving board or slide) and significantly increases your liability risk, which will likely increase your homeowners insurance premium. Plus, your insurance provider might require you to carry higher liability coverage or urge you to purchase an umbrella insurance policy. The insurance provider might require you to install a locking fence around the pool or may even decide not to provide coverage.
2. Adding an office for a home business
Working remotely has become more common, so adding an office could increase your home’s value if you are a remote worker or home-based business owner. However, it could also increase your homeowners insurance rates or require you to purchase an endorsement to increase coverage for business-related assets and equipment, or a separate home business policy that provides liability and protection against crime and worker injuries.
You may need to bolster your existing policy or purchase an additional business policy. You may have a few options, depending on your insurance provider:
- Endorsement to your existing homeowners policy: This option would increase the existing limit on business property included in your homeowners policy.
- Businessowners policy: This is a separate policy designed specifically for insuring a business, and it includes an array of coverages. Your insurer might require this if the company has a home insurance exclusion for business use of personal property.
- In-home business insurance: This type of insurance features the same protection you would get if you were a larger company with smaller policy limits and premiums.
Regardless of the scope of your business, you should let your agent know if you have any business risk in your home, to make sure that you are covered properly.
3. Building on an extension
Sometimes a home needs to be changed to accommodate an expanding family. That can mean modifying a floor plan and adding more livable square footage. Expanding your space with new square footage will most likely increase your home insurance premium as you will need more dwelling coverage.
Before you begin renovations, you may want to speak with your insurance agent to discuss alterations to your policy. For instance, if you’re finishing a basement with new carpet, drywall, and insulation, your agent might recommend purchasing sewer backup coverage. Once renovations are complete, you’ll probably need an insurance reassessment to ensure your home has the coverage it needs.
4. Upgrading your kitchen or bath
Remodeling your bath or kitchen even modestly can give over 70 percent or 95 percent in recouped value, respectively, according to the 2024 Cost vs. Value Report by Remodeling Magazine. With these renovations, you might end up paying more for dwelling coverage since the upgraded materials are worth more and would cost more to replace. Before you sign off on the remodel, your insurance agent should be able to run the numbers to determine if you need to adjust your policy.
Renovations that lower home insurance rates
If you are making changes that make your home safer, like updated electrical or plumbing systems, you might see lower rates after you and your insurance provider evaluate your home renovation insurance needs.
1. Renovating or replacing your roof
Installing a new roof may not be the most exciting home improvement, but it may save you money on your homeowners insurance. Replacing your roof with newer or stronger material usually means a reduction in premium because your home may be able to better withstand potential covered perils.
Some homeowners may earn even bigger discounts if they live in hurricane-, wind- or hail-prone states and their new roof employs special loss-mitigation measures, such as hurricane straps, waterproofing or impact-resistant shingles.
While most home policies cover roof replacements for the perils defined in your policy, some insurers use depreciation schedules based on the age of the roof to determine how much coverage you get. The newer the roof, the more coverage you are likely to have from your home insurance policy.
2. Upgrading your wiring or plumbing
If you upgrade your wiring or plumbing systems, especially if they are older or no longer up to current building codes, you may qualify for an insurance discount. While rewiring a house can be expensive, it could also lower the risk of fires and electrical damage, which means insurance companies could charge you less for coverage because of reduced risk. If you have knob and tube wiring (used in most homes built before 1950), for example, you could see a drastic reduction in your premium, and you might even find that more insurance carriers are willing to insure your house, which means this could be a great time to shop your coverage and compare home insurance quotes.
The same holds true for plumbing. Some types of plumbing, like lead and polybutylene, can make it difficult and expensive to find home insurance coverage. Upgrading to more modern plumbing hardware may reduce the risk for water damage and reduce your home insurance premium.
3. Adding security systems and sprinklers
Home security discounts are relatively common in the insurance industry, and there’s usually some variance in the savings levels. For example, if you install a local alarm system that rings at your home in the event of an intruder, you may earn a small discount. An alarm system that automatically alerts police or a central dispatch team for multiple incidents like burglary and fire would likely earn a higher discount. Interior sprinkler systems may also lower your premiums, as they reduce the risk of extensive fire damage. Installing smart home devices and systems might also earn you a discount on your homeowners insurance.
Do I need to increase my homeowners insurance after renovating?
Whether you need to increase your homeowners insurance coverage for renovations before or after embarking on a project depends on the coverage you already have in place and the value and type of renovation. When you choose an insurance company, part of your insurance rate is established by your home’s square footage and the cost required to fix or rebuild your home based on its age — including the age of appliances, like plumbing and HVAC systems — and characteristics, such as its building materials.
Insurance companies use valuation tools to determine how much home insurance coverage you need for the structure of your house. If the renovations increase that valuation, you may want to consider increasing your coverage, too. Without increased coverage, should a disastrous event occur, any improvements you have made may not be covered.
Another thing to consider is when significant improvements are made outside of your home, like adding a high-end shed or pool. They may not be covered unless your other structures coverage in your homeowner policy is sufficient. Be sure to let your insurance company know when you have done any type of work to your home so that it can perform a post-renovation valuation to accurately determine your new coverage needs.
What does your insurance company need to know after a renovation?
Most insurance agents are eager to work with you and adjust your policy so your home has the necessary coverage. If you don’t inform the company about renovations and you file a claim later, you might find it gets denied because it was not covered.
It’s probably easiest to speak with an agent in person or over the phone. In addition to telling them about the project, you’ll also have to give cost estimates and a timeline. If you need to get building permits, your insurer might want copies of them, along with any contractor agreements. You’ll probably have to provide a timeline of when the work is being done and when it’s expected to be complete, especially if your policy will be adjusted. Finally, some insurers may request photos to document the renovation.
Additional home renovation insurance options
When completing a home renovation, you may want to check to see if adding additional coverage is needed during the renovation process itself. While your current home insurance policy may have sufficient coverage already, you may need to make some changes while under construction:
- Builders risk insurance: This coverage financially protects materials you have purchased to be installed, whether they are on your property or en route to your property. If the materials are damaged or stolen, builders risk insurance should cover the costs of replacement.
- Vacant home insurance: Most standard home insurance policies do not cover uninhabited homes. If you need to live outside of your home while renovations are being done, you may want to consider vacant home insurance. This often overlooked home improvement insurance financially protects your home should any damage occur while you are not actively living in it. You may want to speak with your insurance agent about how to modify your coverage while the renovations are being completed.
- Contractors insurance: This may be an important coverage if you are hiring a third party to do a renovation. Contractors insurance provides coverage for property damage, injury or damage caused by the contractors working on your home. Triple-I recommends asking your contractor if they are insured and obtaining a copy of their certificate of liability insurance before signing a contract to ensure they have an adequate level of commercial general liability (GCL) coverage. A typical GCL policy includes $1 million per occurrence and $2 million aggregate limit.
Frequently asked questions
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Depending on your insurer, you may be able to add a builder’s risk policy to your home insurance, which may provide financial protection while work is being undertaken on your home. Builder’s risk coverage may be especially important if you’re embarking on major renovations that involve expanding the square footage of your home or moving walls. This type of insurance may provide coverage should anyone be injured on the job site, if materials are stolen or damaged or if a covered peril impacts the construction process.
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If you file a claim for a covered peril, insurance will generally pay for repairs caused by fire, falling trees, hail and windstorms. For instance, if you need a kitchen renovation because a tree fell onto your home, collapsing the roof over the kitchen, insurance will likely approve the claim, depending on your coverage types and limits. Be aware that insurance does not usually cover repairs resulting from flooding, earthquakes and normal wear and tear. You may want to read your policy or speak with your agent to see exactly what’s covered and what’s excluded.
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A home insurance policy is unique, so insurers look at factors like the home size, location, age and condition. Your provider will also look at you and consider your claims history, credit-based insurance score (in most states) and marital status. The coverage you choose, deductible you select and your policy limits also determine how much you pay for your homeowners insurance premium. The best way to get the best policy for you is by collecting home insurance quotes from multiple companies and comparing.
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