One of the biggest struggles that comes with paying for insurance is figuring out what precisely the insurance firm is willing to pay for. Understanding your coverage, identifying gaps in coverage, and taking steps to ensure you’re adequately protected can involve a lot of legwork. The alternative, though, is submitting a claim only to learn that your policy won’t cover it.
Case in point: home remodels. In some cases, coverage of renovations and changes is implied, and you’re in luck. In others, your newly built swimming pool is explicitly exempt, and you won’t see a dime from your homeowners insurance.
Now, we can’t say for certain if X or Y is covered by your insurance policy—the list of possible renovations is too long, and even two policies from the same provider can have wildly different stipulations. But we can provide you with some rough generalizations, and some tips on how to minimize your risk of paying out of pocket.
Covering the Basics
You may have had some past run-ins with insurance adjusters, or you might be new to this whole racket. So, to ensure we’re all on the same page, let’s start with some basics.
Isn’t That What Home Insurance is for?
At the most fundamental level, homeowners insurance means paying a company to help pick up the tab in the event something awful happens to your home, the possessions inside of it, or even people who are on the property. This might include things like:
- Damage due to fire or natural disaster
- Possessions stolen by a burglar
- Liability coverage if someone slips on your icy driveway
That list is in no way exhaustive, and again, some policies will cover things that others don’t. Broadly speaking, though, home insurance provides coverage to a primary residence for the policyholder. That coverage will typically include the structure of the house (but not the appliances), possibly the utility lines, and usually the personal property in and around the home.
Coverage often won’t apply if the problem stems from pre-existing damage. If your pipes spring a leak and it causes water damage, that might be covered. If there’s water damage from a leak that predates the start of your coverage, it probably won’t.
Home insurance is distinct from home warranties, which tend to cover appliances and those pre-existing issues, but not the other stuff. And it’s distinct from other forms of property insurance as it’s intended specifically for those who are the owner and resident of the property covered by the policy.
Understanding Your Insurance Policy
Legal documents can be a pain to try to parse and digest, and insurance policies are no different. That said, you don’t need to fully understand the legalese to be able to grasp some of the important bits.
Some policies are “inclusive,” meaning they cover anything that’s not explicitly labeled as an exemption. Others are “exclusive,” where they only cover the items they state in the list. Knowing which one yours is will be the first step to knowing what you can and can’t claim.
There are also limits on how much the insurance provider will pay out. Your insurance may cover the whole cost of a repair, or if the final cost is above your maximum coverage amount, they may cap it and cut you off once you hit that ceiling, no matter how much it ends up costing in the end.
And there are often specific things that can void your coverage (like voiding a warranty), even if a claim would otherwise meet the necessary criteria. For example, if you have an unlicensed individual perform repairs on, say, your electrical system, odds are the insurance provider won’t pay for any damage that may result down the line, no matter what kind of coverage you have.
Will My Insurance Cover This Remodel?
Now, we can dig into the meat of this topic. There are at least three ways you could interpret the above question:
- I’m planning a remodel, but want to know if my insurance will exclude the changes we make from our coverage.
- We’ve already had work done, but are worried that they will invalidate parts of our policy and leave us under-insured.
- I want/need to make some changes, and I’m really hoping that my home insurance will help pick up the tab.
That last one is a bit of an outlier—we’ll talk about the very unique circumstances involved later. Right now, let’s focus on the other two.
Scenario 1: The Remodel Hasn’t Happened Yet
In most cases, you’re in a better position any time you can give your insurance forewarning on things, and ask if you need to adjust your coverage to account for those changes.
Asking about coverage in advance won’t actually impact what your policy covers. What it will do is make it easier to keep the remodel in line with your insurer’s stipulations. And, more critically, it gives you the opportunity to modify your coverage before any changes are made, limiting the possibility that your claim will be denied on grounds like “pre-existing damage,” “insufficient coverage,” and so on.
Scenario 2: The Remodel Is Already Started/Already Complete
Getting coverage after the fact is a bit more tricky, and that complexity scales up with the size and impact of the project that was done.
If your “remodel” consisted of some straightforward cosmetic changes—such as updating paint, flooring, fixtures, and in some cases some slightly more invasive alterations like replacing cabinetry—odds are, you’re already covered, so long as you didn’t use materials that were too pricey.
You’re still subject to coverage limits in most cases, and if your changes weren’t part of the initial appraisal, you’ll be eating the difference in cost when they pay out for repairs. If the cost gap is negligible, that might not be a big deal. But if you sprung for the solid gold toilet, you may be out of luck.
For more involved renovations, such as those that might be done to expand rooms, add decks, install pools, and the like, you’re better off assuming that you’re not covered, at least for those additions and modifications.
These changes are ones that usually add consequential value to the property, and the work often requires permits and paperwork. There are increased safety and liability concerns when work is being done, so unless you’re paying specifically to cover said liabilities, your insurance will be unlikely to pay for someone’s medical bills.
Bottom line, you’re in a gray area, and it’s not a sure thing one way or another. Our best advice is to give your agent a ring, and ask. If you’re already covered, you can rest easy knowing for sure. If you’re not, you can make the proper adjustments to your policy before some mishap befalls your newly beautified home.
If you happen to be reading this while renovations are being done, call sooner, rather than later. There are some “goofs” you might be committing that will make it more difficult to file claims. So finding out what those landmines are will be critical to sidestepping future claim kerfluffles.
Dealmakers and Deal Breakers
Next, we should discuss the details, guidelines, and recommendations that are applicable in almost every circumstance.
The Bad News
Unfortunately, even the most reputable and customer-focused insurance companies will still try to minimize their costs, and that means they’ll deny claims where they have sufficient justification to do so. Your only real recourse here is to have some idea in advance where your situation falls, and identify any alternatives that might be available to you if they’re not covered.
Here are some examples of situations that are rarely, if ever, covered by insurance policies:
- If your renovation project uncovers some previous damage, like rotting subflooring, mold infestations, etc., you’re probably out of luck (unless it’s due to some more recent cause).
- Contractor Negligence, such as incorrect installation, not adhering to building codes, failing to file the appropriate paperwork, etc. all tend to fall outside of what home insurance will cover (so make your vendor decisions accordingly).
- Speaking of building codes, damage resulting from mistakes that such codes are intended to prevent are an easy out for denying claims; so double-check that things are up to code and necessary permits filed (even if you’re going DIY on this).
- Worksite injuries are a gray area, but unless you add coverage specifically for that circumstance, odds are you’re at the mercy of whatever liability coverage the contractor has.
- Even if remodels, possessions, liability, etc. is covered by your policy, the amount might not match, and you may need to increase coverage to ensure a full payout.
The Good News
On the upside, there’s quite a bit that your homeowners policy will cover, and there’s plenty you can do to grease those wheels. For example:
- Changes that are more minor and cosmetic in nature may be covered without any additional action needed on your part.
- Even previously completed renovations may qualify for coverage, though you’ll likely have to update your policy to get them included.
- While adding things to your policy (even temporarily) will usually drive up your premiums, they may prove vital in the event of unpleasant surprises; so if it fits your situation, consider added coverage like builders risk insurance, dwelling under renovation coverage, vacant home insurance, and possibly excess/umbrella liability coverage.
- Certain circumstances may actually lead to a reduction of certain costs if you play your cards right (more on those below).
The Surprises
Making changes to your home can result in a host of rather unique situations, many of which have discrete rules and stipulations from an insurance standpoint. It can be surprising what isn’t covered, and sometimes even more surprising what is covered.
Take coverage add-ons like Dwelling Under Renovation and Vacant Dwelling. These policy modifications help protect you from damage to supplies in transit to your home, and damage that goes unnoticed for a time while you stay somewhere else during the remodel, respectively. You have to pay extra for them, but they can be a lifesaver when things go wrong.
You might also be shocked to learn that some remodels, repairs, and renovations are positives for the insurance company. From their perspective, making changes comes with risks, and they ultimately would prefer if you paid your premiums but never had to file a claim. That said, insurance companies recognize that some things are beneficial for both parties.
Which is why making alterations that increase the safety and durability of your home can have some clear financial upsides. Upgrading to a more durable roof, for example, or adding a robust security system, can lead to discounts and lower monthly premiums.
Oh, and then there’s Scenario 3: in the event that you find yourself needing to file a claim, you might luck out and get a remodel on the insurance’s dime. That’s not to say you’re getting a blank check; you’ll get a payout that matches the value of the repairs up to the policy’s maximum.
That said, you should keep an eye out for some key details if it happens to you, such as continuous flooring—if you have to repair a bathroom floor, and the same hard flooring is used without transition into other rooms, you’re probably going to get a check to cover replacing the whole area with that flooring.
Finally, keep in mind that you can take the opportunity to upgrade some things when performing a claim-funded repair/remodel, you’ll just have to eat any difference in cost beyond what you’re covered for. So if you have a reliable way to source materials and/or labor for a reduced cost, you might be in a have cake/eat cake scenario of the simultaneous variety.
Our Recommendations
All right, let’s close out with some final recommendations to make the most of your situation, and mitigate your risks:
- Following up is your friend, both with the insurance company, and with the remodeling crew.
- Talk to your insurance, ask what information they need, and provide it as soon as possible; don’t provide more than is necessary, but have the information on hand in case it is.
- Document as much as possible. Take photos, keep copies and records of everything, get estimates/quotes/contractor agreements/etc. Hold on to receipts, emails, texts, and any other written information that’s relevant (and try to keep it organized).
- Don’t take your contractor’s license, insurance status, or reputation for granted. Ask for proof that they operate above board. Make sure they file the necessary permits (and do so correctly). And where possible, check to see that they’re adhering to proper building codes.
- Look into types of supplemental or add-on coverage, see if they’ll be applicable in your situation, then decide if the increased cost will be worth it. Similarly, consider increasing coverage maximums to account for increases in value for your property, your possessions, and even possible liability concerns.
- Keep an eye out for possible financial windfalls that the remodel might qualify you for. That includes premium reductions, discounts, claim payouts, etc.
Check us out at Homeowner.org for more on home warranties, home improvement, and home remodeling. We’d love to help you optimize your experience as a homeowner!
