While you must foot the costs of renovating your home, the value of those renovations is covered under your homeowners insurance policy, provided they were damaged or destroyed by a covered peril. However, coverage for your home improvements may not be automatic. If the renovations substantially increase home value or introduce items requiring separate coverage into the home, policy updates are needed to cover the improvements.
Renovations Are at Your Expense
Your homeowners insurance provides no coverage for the cost of home improvements, even if they are a necessity. For example, if your furnace breaks in the middle of winter, fixing it is necessary, and putting in a new furnace is a home improvement. However, since the furnace breaking is a maintenance issue rather than a covered peril, you must cover the expenses of replacing it.
Improved Items Are Covered
Once you have completed home improvements, your policy covers the more expensive items in some cases. For example, a new furnace is part of the structure covered by your policy, so the cost of replacing it should it succumb to a covered peril is borne by your insurance company. Other structural items, such as new walls, ceilings, etc., also qualify for coverage.
However, bear in mind that your policy has coverage maximums. If the home improvements increase the value of your home beyond those maximums, you need to raise the limits to remain fully covered.
For example, if your home is insured for $250,000, but you renovate it and increase its value to $350,000, you need to raise your policy limits to reflect the difference. The premiums will rise, but the increase in cost is far less than losing out on $100,000 should your home be destroyed by a fire, tornado, or other disaster.
Some Home Improvements Require Additional Coverage
Certain types of home improvements require you to specifically purchase additional coverage for them. For example, if you add a swimming pool, you need to declare it to your insurance company. Since pools come with increased liability risk, you need to increase your policy limits. In addition, if you fail to add the pool to your policy and pay the increased premiums, any claim related to the pool may be denied.
Damage Must Occur Due to a Covered Peril
Insurance policies define under what circumstances they pay for damages. Events eligible for coverage are known as covered perils. Common covered perils include fires, pipe bursts, sewage backups, tornadoes, storms, vandalism, and burglary.
Homeowners insurance policies also exclude certain types of damage. No company covers normal wear and tear or maintenance. Also, most policies exclude flood- and earthquake claims. However, separate policies for floods and earthquakes are available, though they usually come with high deductibles and specific limits and exclusions.
Home improvements can update a home, make it more enjoyable, and increase its value. Even if home improvements are necessary, such as replacing a fallen wall or furnace, your homeowners insurance provides no coverage unless the repairs or replacement are needed because of a covered peril, such as a storm, fire, or pipe burst.
Once home improvements are completed, they are covered by your policy if they are damaged or destroyed by a covered peril. The key is to ensure that your policy limits are high enough to cover all improvements fully and special items, such as swimming pools, are included in the policy. If special items are left off, the company could deny the claim. In addition, if you increase the home’s value beyond the limits, your compensation should your home be destroyed may be inadequate.