You’ve picked the tile, swatched the paint and are certain about which walls are load-bearing — you’re all set to start your home remodel. However, before you swing the first hammer (or before you let your contractor do that dangerous job) you should consider how your major renovation project could impact your homeowner’s insurance and home warranty.
You should have both insurance and warranty policies to protect your home from various calamities, like a hurricane throwing a tree through your front window or your AC refusing to turn on during the hottest week of the year. Yet, when you sign the contracts for these policies, you are agreeing that they protect your home as-is — which means when you change your home in a significant way, like knocking down walls or rearranging the plumbing, you risk ending that coverage.
So, you have two choices: Ignore the fact that your insurance and warranties won’t be in effect during and after the remodel, or do something to keep your home safe. If you choose the latter, keep reading.
Why Your Insurance and Warranty Won’t Work Anymore
It’s important to note that there are two types of renovations: minor and major. A minor renovation won’t cause you to relocate during construction and doesn’t cost that much to complete; some examples include window replacements, installation of cabinets or built-in shelves or painting. It is unlikely that your insurance or warranty will lapse during a minor renovation.
Conversely, major renovations comprise replacement of major home systems (like walls, roof, foundation, HVAC, pluming and electrical) and require you to move out for the demolition and construction phases. Additionally, when you spend 10 percent of the home’s replacement value or $500,000, whichever is less, you are performing a major renovation. It’s during these major renovations that your insurance and warranty stop working.
This is because major renovations fundamentally change how your home looks and functions. When you created your insurance and warranty policies, your providers calculated the costs based on current features of the home, including that it remains occupied by someone who can notice problems and defend against theft and other assaults. When you significantly alter those features — or leave the property unoccupied — the policies no longer apply and thus you are no longer covered.
Additionally, major renovations come with a few significant risks, such as:
- Greater risk of injury to visitors and workers on the property
- Greater risk of theft of valuables or vandalism on the property
- Greater risk of damage to home through heavy machinery and tools
If you are uncertain whether your insurance and warranty will go void during a renovation, you should contact them directly and ask questions about your unique situation. This is especially important for home warranties; if you don’t already have home warranty coverage, you should contact a trustworthy provider like American Home Shield. Fortunately, even if your existing policies won’t work, there are several things you can do to stay covered.
What You Can Do to Protect Yourself During the Remodel
The first step in protecting your finances, your home and yourself during a remodel is to hire a trustworthy contractor. In most states, contractors must have their own insurance, which covers your contractor’s workers, tools, materials and business from certain types of damage during the project. Often, contractor’s insurance will also compensate you should the project not be completed to certain specifications.
However, even if insurance is mandated by your state, you should take steps to ensure your contractor’s coverage is in effect. For one, you should request to have your name added to the policy, which contractors will do for no or nominal fees.
Having your name on the policy ensures that you are contacted if their coverage lapses due to missed payments or some other issue. It also puts you in direct contact with the contractor’s insurance provider, so you can submit claims without going through your contractor.
Next, you should consider adding renovation coverage to your existing insurance policy. Renovation coverage protects you from the increased risks of loss, described above. Typically, this added coverage comes with some requirements, like erecting a perimeter fence to keep trespassers away or removing any and all combustible materials from the property.
Though it will increase the cost of your insurance for the duration of your remodel, it is well worth the continued peace of mind during the turbulent period of a major remodel.
A major remodel is hard enough when everything goes right — but what if something goes horribly, terribly wrong? You need to be certain your insurance and warranty are working, even when your home is undergoing changes. Then, when you finally move back into your beautifully updated home, you can resume life as normal without fear of catastrophe.