Renovations Statistics:
According to the Census statistics on residential improvements and repairs, Americans will spend nearly $50 million on maintenance and repairs, and more than $140 million more on improvements, alterations, and replacements.
Average Cost of Renovations:
- Basic Room Addition: $115 to $250 per square foot and up
- Major Kitchen Remodel: $45,000 and up
- Simple Bathroom Upgrade: $10,000 and up
- Basements: $45 to $150 per square foot
- Porches: $100 to $350 per square foot and up
Return on Investment for Remodels:
- Deck addition: 72.8%
- Major kitchen remodel: 68.7%
- Bathroom remodel: 64.1%
- Family room addition: 62.5%
- Basement remodel: 70.0%
Increasing Insurance Coverage
When adding an extra room or making some other improvement to your home, you should update your homeowners insurance policy to cover the addition or improvement to protect yourself from both the property and liability risk involved.
From a property perspective, you need to update your policy because your home’s value should rise, since additions and renovations generally increase the overall value of your house. Therefore you should increase your total coverage to reflect your home’s greater value. If your new structure is not added as a covered item on your homeowner’s policy, and it were to be damaged, your insurance company might not cover the loss.
We suggest contacting your insurance agent before construction begins to increase your coverage, reflecting the new changes to your home. Your agent can determine how much additional property coverage you may need. You should also update your agent on the progress of the construction, in case the scope of the renovation changes or completion is significantly delayed. In some cases, you may need to increase your coverage again. Another reason to discuss your plans with your agent before the work begins is if the improvement were to be damaged or destroyed before it is completed, you might have to pay for the loss out of your own pocket.
Of course, when you purchase more insurance, your premiums will increase. With depressed property values, it can be hard to reconcile insuring your home for $200,000 when your resale value might be only $120,000. Insurance companies look at your home’s value based on what it would take to replace or repair your home to the condition it was before the loss occurred. This includes the style and amenities you have added to your home.
Occupied or Vacant Remodel
While your remodeling is being done, you need to let your insurance agent know if you will be living in the house during the construction. Vacant homes are insured differently, so if you have bought a home and are renovating prior to moving in, your agent will likely suggest a vacancy/renovation policy to capture the vandalism and malicious mischief peril coverage. You may also need to consider protection for the building supplies your contractor uses to complete the job. If supplies such as carpeting, tiles, or lumber are stolen, your homeowners insurance or the contractor’s business insurance should cover the theft; however, it is best to find out the coverage for such a loss before theft happens.
Liability Coverage
When you hire a contractor or builder to work on your house, you run the risk of a lawsuit if the contractor or an employee gets injured on the job. You can protect yourself from this potential liability by verifying that your contractor carries adequate workers’ compensation coverage. The contractor should be able to present an active certificate of coverage. Ideally, you want to check insurance certificates to make sure the person you hire has coverage with acceptable limits that covers him and any subcontractors he may hire. Your contractor should also have a certificate for contractor’s liability coverage. This line of insurance covers any damage the contractor does to your property unrelated to the renovation.
Self-Contractor
If you plan to do most of the renovation yourself with a little help from a relative or close friend, you still need to make sure your help is adequately protected in the event of injury. Generally, the liability coverage of your homeowners insurance will pay the medical bills, just as it would for any other guest at your home. Under some circumstances, though, your helper’s health insurance may pick up a portion of the medical costs before your homeowners policy goes into effect. If you have any questions about coverage, your insurance agent can explain the risks you are open to.
Finally, it is important to obtain proper inspections to make sure that the addition and renovations meet local code. Without this, a loss might not be fully covered under your policy. For example, if an electrical fire started in an uninspected room that you added on, you may have a problem.
At Henssler Financial, we believe you should Live Ready. That means protecting your home before you open yourself to the potential risks inherent in renovations or remodeling. Your home is one of the largest and important asset you can have, so protecting your investment is essential. If you would like to speak with someone regarding the insurance coverage on your home, give one of our experts a call at 770-429-9166 or e-mail at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
