I'm Renovating. Should I Update My Homeowners Insurance?

You may want to call your insurance company.

There are plenty of good reasons to renovate your home. Doing so might make it possible to better enjoy your living space, and also increase the value of your property. That could lead to a higher price when the time comes to sell it.

But if you're going to renovate, you may want to contact your homeowners insurance company before you get started. That's because the work you do could result in the need for more coverage.

Do you have enough insurance coverage in place?

One big component of your homeowners policy is your replacement cost coverage. The purpose of that coverage is to ensure that if your home were to get destroyed, your insurer would pay out enough money to have it rebuilt.

Some home renovations -- notably, minor ones -- won't really impact a home's replacement cost. Say a homeowner decides to update the carpets or modernize their bathroom with nicer tiles and countertops. Those improvements might make the home look nicer and add value at resale. But they won't necessarily make it considerably more expensive to rebuild the home should that need arise.

On the other hand, there are certain renovations that may result in a need for a higher level of replacement cost coverage. Say a homeowner is gutting their kitchen and building a new one from scratch with high-end appliances, cabinets, and countertops. That sort of project might add a good $50,000 to the home's value. It might also make the home that much more expensive to rebuild in the event of extreme damage. That's the sort of renovation that could warrant an adjustment to the existing homeowners insurance policy.

Similarly, say a homeowner is putting an addition onto their home. If doing so adds 1,000 square feet of living space, they can bet it will add to their home's replacement cost. Once again, that makes the case for a higher level of coverage.

Of course, some renovations might not only add to a home's replacement cost, but also, create a liability. If a homeowner puts in a swimming pool, for example, that could drive their insurance costs up, because a swimming pool might increase the possibility of flooding on the property or, worse yet, injury.

It's a good idea to contact your homeowners insurance company whenever you're doing a major renovation. While you may not relish the idea of having to pay for added coverage, it's a better alternative than neglecting to increase your coverage and potentially winding up in a tough spot if your home needs to be rebuilt and your insurer won't pay in full.

Could renovations save you money on homeowners insurance?

It's worth noting that if a renovation results in a safer property, then it may actually end up leading to a discount on homeowners insurance premiums. Adding a fence, for example, could be seen as a protective measure that leads to some savings.

But for the most part, a major renovation means there's a good chance that homeowners insurance costs will rise due to needing higher replacement coverage. And while nobody wants to see their bills increase, it's important for homeowners to have that conversation with their insurance company so they can be secure in the knowledge they have adequate coverage for a true worst-case scenario.