You’re finally ready to add that master bedroom addition to your home. Or maybe your expansion dreams call for a new two-car garage. You might even be planning a true backyard escape, installing an in-ground pool complete with a shower and changing room to go with it.
Before you hire a contractor, though, you need to call your homeowners insurance company.
Big home-improvement projects can mean big changes to your homeowners insurance. They can also mean big increases in the amount you pay each year to insure your residence.
It’s not all gloom, though: Certain home improvements can actually lower your premiums.
“The big red flag is any renovation that changes the structure of your house,” says Patti Clement, first vice president and managing director at HUB International Northeast in New York City. “When you are adding to the existing structure of your house, your premium could rise. You definitely need to be in contact with your insurance company when you take on a major remodeling project.”
Bigger home means bigger premiums
Stacy Molinari, manager of personal lines with the Worcester, Mass., office of Insurance Marketing Agencies, says that any time a renovation makes your home larger, you can expect to pay more in homeowners insurance.
There’s a reason for this: It costs more to rebuild a larger home.
“If you add square footage you can expect your premiums to go up,” Molinari says. “When insurers estimate the cost of insuring a home they look at the costs of rebuilding it. Those costs will increase if you have a larger home.”
How much more you’ll pay depends on a variety of factors, Molinari says, including where you live, the type of addition you're planning, how much larger you're making your home and what materials you are using. Before construction begins, you should call your insurer to discuss the possible impact that your renovation project might have on your insurance premium.
There are times when an addition will barely cause your premium to budge, as long as your current coverage is high enough, said Sarah Vetal, account manager with the South Borough, Mass., office of G&N Insurance.
"We would re-evaluate your coverage using your new square footage. That won't always increase the dwelling coverage that you'll need, but it could," Vetal says. "If you need additional dwelling coverage, your premium will go up. The same thing could happen if you upgrade your kitchen from a standard kitchen to a custom kitchen. That could increase your premium, too."
The reason for that? It costs more to replace a custom kitchen than it does a standard one.
New structures can add to costs
Adding structures to your property can also increase your premium. Say you build a new garage, new gazebo and an in-ground swimming pool. Standard insurance policies typically include coverage for outside structures, usually in the amount of 10 percent of your total homeowners insurance coverage, Molinari says.
So if all those new structures you are adding are particularly costly, you might need to boost your insurance coverage to adequately protect yourself should that pool house burn down. More coverage, of course, means a bigger insurance premium.
Then there’s that in-ground pool. Insurers don’t really like swimming pools. They are known as attractive nuisances. Insurers believe that if you have a swimming pool, you’re more likely to get sued. So you might need to increase your liability coverage after installing an in-ground pool. And don’t forget to tell your insurer that you’ve added a pool. If you don't, you might face a huge bill, and find your insurer unwilling to help out financially, should someone sue you after an injury related to this new pool.
If a pool also increases the value of your home, you might again need to add more to your dwelling coverage. The bottom line? Installing a swimming pool could prove costly.
Don’t hide your home improvements
Elk Grove, Calif.-based attorney Jonathan Stein says that homeowners too often make the mistake of not reporting improvements to their insurers. That can lead to problems if, say, their residences burn to the ground and need to be completely rebuilt.
If these homeowners had replaced their laminate countertops years ago with granite and ripped out their home's upstairs carpeting and replaced it with hardwood floors, they'll need more money to rebuild their home to its new standard.
But if they didn't report these improvements when they made them? They might not get enough dollars from their insurers to replace them, Stein says.
Your home with its cheaper countertops and wood floors might have been insured for $150,000. After your improvements, your home might be worth $180,000. If it burns to the ground, don't expect your insurer to provide that extra $30,000 if you didn't report your improvements when you made them.
"I've seen that happen too many times," Stein says. "You never want to get caught without enough insurance."
You might be adding solar panels to your home’s roof to lower your energy bills, too. These panels, though, could cause an increase in insurance premiums. Again, you’d have to boost you insurance coverage to pay for rebuilding the panels should your home be destroyed.
“The key is that you always want enough coverage to allow you to rebuild,” Molinari says. “That coverage amount will change when you make improvements to your home.”
Saving money? Some improvements help
Don’t think that all home improvements will only pull your insurance premiums upward. Some improvements will actually result in lower insurance fees.
Clement says that any improvement to your home’s interior systems, such as your home’s heating, plumbing and electric, can lower your insurance premiums. That’s because new systems are less likely to result in burst pipes and electrical fires that end up costing insurers money in coverage, Clement says.
Adding a new home-security system or a gate around your home can lower your premium, too, as these improvements provided added protection against theft. A back-up power generator might also result in an insurance discount, Clement says.
“There are all kinds of things that can lower your premiums,” Clement says. “It’s a good idea to call your insurance agent before you make any changes. You might be surprised at how creative you can be to keep your insurance costs down.”
See also: 6 difficult to insure home (pricey, too)