We are officially in the era of home improvement. With dedicated home improvement television stations, mega-hardware stores conducting free DIY classes and home improvement tax incentives, home improvement is everywhere. However, what is not everywhere is that your homeowner insurance may be affected by your recent Do-It-Yourself project or contracted home improvement. As a result, many people may be surprised to find out that they might not have the homeowner insurance coverage they expect.
When Does a Home Improvement affect my Homeowner Insurance?
The amount of insurance on your homeowner policy is based on the Replacement Cost or the cost to rebuild the home. So when you make an improvement or renovation to your home that increases its Replacement Cost value, your homeowner insurance needs to be updated. However, not all improvements affect your home’s Replacement Cost value. Most minor improvements such as painting, new windows and doors do not affect the Replacement Cost value of the home because you would be replacing existing home features with those of similar kind and quality. However, any home improvement that adds a new feature or is an upgrade does affect your Replacement Cost value and your homeowner insurance policy. Here are just a few examples of improvements that do affect a home’s Replacement Cost:
– Adding a porch or deck
– Adding a new bathroom
– Adding central air conditioning
– Finishing a basement
– Building a garage
– Remodeling a standard kitchen to a customized kitchen
Why is it important to update your homeowner insurance?
1. The Home Impovement May Not be Covered – Most homeowner insurance policies require the value of the home on the policy to be maintained at 100% of its Replacement Cost value and any improvement affecting the Replacement Cost value must be reported to your insurance agent or company. Any improvement not reported most likely will not be covered in the event of a loss.
2. Some Losses May Not be Paid in Full – If the value of the home stated on the homeowner insurance policy falls below 80% of the Replacement cost value, all partial losses may not be fully covered. For example, if you have a covered $10,000 fire loss to any part of the home, you could end up receiving less than $10,000 if the home is insured to less than 80% of its Replacement Cost value.
Overall, it is important to understand that any home improvement may require insurance improvements too. Otherwise, those improvements may not be covered in a home insurance claim and any other home insurance losses may not be paid in full. Make sure to talk with your agent or insurance company to find out if your home improvments affect your specific homeowner insurance policy.
Have you made any home improvements that affect your insurance lately?