Insurance renewals typically occur once per year. For most Canadians, a cursory glance is all the attention it’s given, as most policies auto-renew. But it’s important to take the time to think about any significant changes that have occurred over the last year that may affect your coverage and premiums. One such change is home improvement projects that you may have taken on. An updated bathroom, a finished basement, or repairs to a deck all can affect your policy coverage. Let’s take a look at whether or not home renovations affect insurance renewals.
Renewing your home insurance
Most homeowners pay little attention to their insurance renewal forms. Many believe nothing significant has occurred, therefore the rates should be the same. However, that is not always the case. It’s possible for premiums to either increase, decrease, or stay the same during insurance renewal.
Increases are often related to changes in market values—your home insurance premiums may increase due to:
- Inflation causes changes to the cost of building repair or restoration.
- Increased costs for resolving insured perils, or
- Increased risk exposure for damage and destruction that will prompt you to file an insurance claim.
- Home renovations
Making big changes can be a lot of work, and most updates can be quite pricey. The good news is, many benefits come with improving your home. Not only will you be making your home a more comfortable place to live, but you will be making it safer in many ways. Updating your home also allows it to increase in value if you ever decide to sell. However, it’s important to ensure that the new value of your home post-renovations will be covered under your current policy coverage.
Renovations and insurance renewals: What is the connection?
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 renovations push you to increase your coverage limits or expose you to greater liability. This is why notifying your broker is important before commencing any home project. They can advise you of some ways your plans can increase or decrease your premiums.
Building a swimming pool: Considered an “attractive nuisance”, it considerably increases your liability risk. Increased liability risk will most likely increase your insurance premium. In general, all swimming pools need to be insured to help cover the costs of pool-related injuries or damage caused by named perils that occur to the pool. What that typically means is that both above-ground and built-in pools should have adequate property insurance coverage for financial security.
Adding an office for a home business: While it may increase your home’s value if you are a remote worker or home-based business owner, a renovation can increase your premiums or require you to purchase an endorsement to increase coverage for business-related assets and equipment. It may also require you to purchase a separate home-based business policy that protects against crimes and worker injuries.
Experts estimate that 1 in 4 remodeling projects add at least 25% to the value of a home. However, most homeowners often forget to increase their coverage to protect their investment.
Building an extension: Whether you are considering modifying your existing floor plan, like finishing your basement, or a new addition expanding your space with new square footage will in all probability require a higher level of dwelling coverage. These types of renovations may necessitate more post-renovation insurance. A finished basement with new carpet, drywall, and insulation may need sewer backup coverage. These types of renovations affect your insurance renewal when it’s time.
Upgrading your kitchen or bath: According to the 2022 Cost vs. Value Report by Remodeling Magazine, a kitchen or bathroom remodel can provide more than 50 percent in recouped value. If you make quality upgrades, you may need to increase the dwelling coverage on your home insurance, which usually comes at an additional premium cost.
Should you not notify your insurer of your renovation plans, the cost of those upgrades will not be factored into your replacement value insurance coverage. If you don’t notify your broker of those changes and the worst happens, such as a devastating fire, you won’t receive adequate insurance compensation to restore your kitchen to the same condition it was after your remodel. That’s because your policy limits will only cover the cost of the materials and items in your old kitchen.
Can you be underinsured?
Any renovations completed should be reflected in your home policy. The risk of being underinsured is the primary reason why it’s important to consider any changes that have occurred. If there have been any in the last year, report them to your isure broker. Before your next renewal, it is best to update your policy. That way, your broker has the opportunity to find any coverage gaps that may exist and close them up so you can rest assured that you have the financial protection you need. You won’t be left without insurance compensation in the event of an insured peril. Be sure to speak with your insurer or isure broker about updating your rebuilding cost or contents coverage.
It may seem that home renovations affect insurance renewals negatively, meaning by renovating your home you will only be incurring more costs in your monthly premium. However, decreases to your insurance premiums may also happen as a result of eligible discounts that didn’t apply to you before the renovations. Updates to your home can add significant savings to your monthly insurance costs. Some of these cost-saving upgrades are:
- Including a fire monitoring system: To protect your investment, you may decide to add this extra layer of protection. A monitoring system, whether on or off-site, reduces your liability risk.
- Install an alarm and video security system: Similar benefits to a fire monitoring system. Not only are they helpful in keeping your home safe, but you can also drastically lower your home insurance rates with this added level of protection.
- Updating electrical wiring and plumbing: Modern electrical systems utilizing wires, such as copper, are much safer, which will help lower your home insurance rates.
- Replacing and installing a new roof can help lower your premiums by protecting your home from potential water damage.
Do I need to increase my homeowners’ insurance after renovating?
Do you need to increase your homeowners’ insurance coverage for renovations before or after embarking on a project? That depends on the coverage you already have in place and the value and type of renovation. 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. This also includes the age of appliances, plumbing, and HVAC systems — and characteristics, such as 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. Without increased coverage, should a disastrous event occur, any improvements you have made may not be covered. Be sure to let your isure representative know when you have done any type of work to your home. They can perform a post-renovation valuation to accurately determine your new coverage needs.
Home renovations and insurance renewals: Conclusion
When renewing your insurance, one crucial step is taking the time to consider any changes in your life or business that may affect your insurance coverage going forward. Home renovations affect insurance renewals both positively and sometimes, negatively. It is important to know how your plans will affect your premiums. Relaying planned changes to your isure broker is important because they can ensure you have the right types of coverage in the right amounts. In addition, they can advise you on which will benefit your bottom line and identify those that may decrease your home’s value. Contact us today with any of your insurance renewal questions!
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