Do Home Renovations Change Your Insurance Rates?
There are plenty of reasons why you might want to take on a remodeling project for your home.
You may want to create more liveable space or increase your home’s value. It could also be something as simple as giving a certain room or corner of your home your home a much-needed makeover.
But did you know that certain renovations can actually raise your home insurance? Stay with
us as we cover which ones will fill your wallet versus drain it, and when you’ll need to increase your home insurance limits to protect it properly.
Renovations That Increase Home Insurance Rates
Some renovation projects increase the amount it costs to rebuild your home—which means you’ll need more homeowners insurance coverage to ensure you’re fully protected.Here are the home improvements that may raise your monthly premiums (and why) include:
- Building a swimming pool: It’s common sense that a pool can turn even an ordinary home into a hot property for potential buyers. But insurance companies don’t always see it the same way. To them, a pool adds a significant increase of liability risk, which prompts them to raise your premium. Most homeowner’s insurance policies offer liability coverage, which will help cover medical bills in the event that someone sues after being injured on your property. However, these policies may not provide enough protection depending on the liability coverage limit, which varies by carrier. Plus, a pool can be a considerable risk—especially for families with young children or those who like to have parties and gatherings. That’s why it’s wise to add an umbrella insurance policy, which will provide additional liability coverage for greater financial protection.
- Adding an office for a home business: Now that most of us are working remotely part-time‚ if not full-time, it’s important to have a dedicated space for it. However, you’ll most likely see a spike in your insurance rates as a result. Depending on the type of business you run, you might be required to purchase one of the following for extra coverage:
- Endorsement to your existing homeowners policy: A standard insurance policy protects your home-based businesses up to about $2,500. However, that might not be enough if you use specialized machinery or store a large amount of inventory or supplies at home. But an endorsement will increase the coverage limits for your equipment and business-related assets.
- Businessowners policy: If your homeowner’s insurance policy won’t cover liability related to your business, it may be wise to consider a separate policy designed specifically for insuring a business. This is a good fit for business owners who have frequent foot traffic at home, such as music teachers or massage therapists.
- In-home business insurance: This coverage offers the same protection you would get if you were a larger company with smaller policy limits and premiums. Be aware that some carriers may include a home insurance exclusion for business personal property. If you have work-use items in your home, you should get in touch with your insurer to make sure that you have the right amount of coverage.
- Expanding your liveable space: Regardless of the home’s size, adding some livable space can make any property more desirable—for you and potential buyers, if you’re looking to sell. This can mean building an in-law suite, finishing a basement or attic, or adding on the kitchen. The only downside is that it will typically raise your insurance rate, since you’ll need a higher level of dwelling coverage. And if the space is not inside your home, you might need more post-renovation insurance—for example, adding a bedroom above the garage, which would require an insurance reassessment.
- Upgrading your kitchen or bath: If you’re doing an upgrade to the kitchen or bathroom with expensive materials or updates, you may need to increase the dwelling coverage on your home insurance, which usually comes at an additional premium cost. Some examples are: upgrading to granite countertops or wood flooring, having custom cabinets built, or swapping out old appliances for new built-in versions. If your existing coverage is not sufficient, you might have to pay out of pocket for some of the damages to your kitchen or bath after a covered loss.
Renovations That Lower Home Insurance Rates
Ready for the good news? If you plan to update your home in ways that make it safer, your insurance company will offer you discounts on your insurance rate as a reward. Here are some of the renovations that are guaranteed to drop your monthly premium.
- Renovating or replacing your roof: Your roof has the biggest impact on your homeowners insurance rates. Replacing an older roof with a newly constructed one means your home is better protected—which can significantly decrease your insurance rate. You can save even more if you special loss-mitigation measure—such as hurricane straps, waterproofing or impact-resistant shingles.
- Upgrade your home systems: If you upgrade your wiring, plumbing or HVAC systems, especially if they are older or no longer up to current building codes, you may see a hefty drop in your insurance rate. Here’s what you’ll need to do:
- Upgrade your electrical to copper wiring. Rewiring a home can be on the expensive side, but it also decreases the risk of fires and electrical damage from outdated aluminum or knob-and-tube wiring.
- Replace aging pipes: Be warned that if you have lead or polybutylene pipes in your home, it won’t be easy to find insurance coverage. By upgrading to modern plumbing hardware—such as cast iron, copper, or PEX—you’ll reduce the risk of water damage, while also decreasing your premium.
- Install a new HVAC system or water heater: In addition to dropping your insurance premium, modern HVAC upgrades are safer, too. You’ll save even more by choosing eco-friendly upgrades such as solar panels, heat pump water heaters, or Energy Star appliances.
- Add a security system: When it comes to home security, no measure is too small. Deadbolts, fire alarms, and sprinkler systems are easy ways to give yourself peace of mind—and they’ll also lower your insurance rate. Still, the size of your discount is based on the quality and effectiveness of the protective device. 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. However, you’ll earn a higher discount if your alarm system automatically alerts police or a central dispatch team for multiple incidents like fire and burglary.
- Invest in smart home tech: There are many different smart home tools and devices that can streamline your day and make your home safer. Devices such as smart locks, water leak detection systems, and gas leak or freezing pipe sensors are all ways to remove some daily worries while adding additional security at home. As the cherry on top, you’ll also see a decrease in your insurance rates.
The Bottom Line
Another thing to keep in mind is that homeowners’ insurance rates have increased quite a bit since the pandemic. Supply-chain issues, labor shortages, and inflation are all to blame for the price hike, but longer-term trends can affect rates, too. That’s why it’s important to notify your insurer of any renovations or additions. They’ll help you update your policy to reflect any changes to your home’s replacement cost value—which will ensure you have enough coverage to pay for a full rebuild in the event of a disaster.
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