But is that even possible, though? Well, honestly, it is, yes! When you think of renovations, you might be thinking about working on the house exterior, well, in terms of maintenance, maybe painting walls, adding crown moulding, well, fun little things like that. And it all honestly starts out as fairly innocent, right? Well, when it comes to renovations, well, the more grand ones at least, the more hopeful ones, plans tend to expand. Like maybe it’s a shed that has a fully insulated and full-powered workshop, or a basement with drywall that’s going to become a guest bedroom or second living room, nice things like that.
As fun as all of that is, there’s one part that almost nobody thinks about while picking tile samples, and it’s the part that can hurt later. The house gets better, more finished, more valuable to rebuild, and the insurance policy can stay stuck in the past, as nothing changed. Yes, this is super common!
Why Does Underinsuring Happen So Easily?
Like, how do you even know that you’re doing that?! Well, most people assume homeowners’ insurance automatically tracks the value of renovations. Like, if the house is nicer, the coverage must magically adjust, right? Yeah, sure, that would be convenient. But no, that’s not the reality, that’s just not how any of this works. So, in reality here, coverage limits are often based on what it would cost to rebuild the home, and that number can be very different from the home’s market value, and very different from what the home cost years ago.
Renovations can increase rebuild cost fast because materials aren’t cheap, labor isn’t cheap, and custom work is almost never cheap. Granted, that’s all obvious here. Plus, an addition is literally more structure, more systems, more everything. So if a policy is still set for the older version of the house, it can fall short when it matters most. Make sense?
What You Need to Do Before Renovations Start
First, it helps to document the “before” state. Yeah, it’s boring, but a quick video walkthrough and a folder of photos can be useful later. Now, the point of all of this is to just have proof of what existed, and then again, what just got improved. But it can help to maybe have a spreadsheet too. Afterwards, there needs to be a quick insurance check-in during the planning stage, not after everything’s finished and receipts are lost in a drawer.
Well, it’s also going to help to talk to an insurance professional about your homeowner insurance, such as G&G Independent Insurance, because you absolutely can’t take any chances trying to do guesswork here (and policy language feels like a foreign language, too). But overall, keep in mind here that some upgrades might require endorsements, updated limits, or different coverage for detached structures.
But What Renovations Actually Change the Math?
And this might be the part that’s most confusing of all, because what renovations in particular are causing you to potentially be underinsured? Well, kitchens are a big one because so many upgrades are hidden behind the walls. Like moving plumbing, updating electrical, adding gas lines, installing higher-end appliances, expanding layouts, building custom storage, you get the point. The same can be said for basements, that’s a whole can of worms, thanks to HVAC and plumbing (well, egress considerations and electrics too).
Additions are obvious in theory, but the cost jump still surprises people. More square footage means more foundation work, framing, roofing, HVAC considerations, and finishing work. Then there are sheds, detached garages, and backyard structures, which can be covered differently depending on the policy, too. But as you can see, so many things can actually impact the math here.
A penny for your thoughts?