Do I need to insure my recent remodel?
October 6, 2022 by PEMCO Insurance
Remodeling? Make sure your homeowners insurance covers it.Don’t let a home remodeling project leave you underinsured! About one-third of people who remodel their homes forget to tell their insurance company about the improvements they make. That could leave them with less homeowners insurance coverage than they’d need if their home was destroyed in a disaster like a fire or windstorm. And on the flip side, they could be paying more for insurance than they should if the project improved their home’s safety, like replacing an untreated and flammable cedar-shake roof with a Class A fire-resistant material like fiberglass-asphalt shingles.
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Here’s what to know about protecting your home after a remodeling project and making sure you’d have enough insurance coverage to replace it if the worst ever happens.
What does it mean to be underinsured?Almost all homes start out with the right amount of insurance. But as homeowners upgrade and improve their homes, their insurance can come up short. That’s because even with quality replacement-cost coverage like PEMCO’s, there’s a limit on what insurance can pay based on the features of your home at the time you bought your policy. In the insurance industry, “replacement coverage” means replacing a damaged used item with a similar new item of like kind and quality. So, for example, while insurance would pay to replace your damaged, outdated mauve bathroom laminate with on-trend marble-look laminate, it couldn’t fully cover the costs of replacing it with pricier genuine marble or tile.
Typically, if remodeling is so extensive that you need to take out a home-improvement loan, your lender will insist that you update your insurance. But it doesn’t take something as major as adding a bathroom, bedroom or second story to push an insurance policy beyond its limits. Smaller projects done over time can creep up. For example, maybe one year, you replace your sheet-vinyl floors with hardwood. The next year, you give your bathroom a spa-like makeover. And a few years later, you upgrade to stone countertops and chef-quality appliances in the kitchen.
Before you know it, your home’s value can exceed the amount it’s insured for!
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Outdoor additions are another potential source of trouble. Fences, gazebos, detached garages and workshops and even paved driveways are covered as “other structures” under most homeowners insurance policies, including PEMCO’s. Coverage is based on a percentage (typically 10%) of the coverage on your dwelling – so if your dwelling is covered for $500,000, the combined coverage on all your other structures would be $50,000.
Solar panels, depending on where they’re permanently attached (either to your home or another structure), may be protected by either your dwelling or other structures coverage. The same is true for decks and outdoor kitchens.
And a consideration for condominium owners: While your original appliances and surfaces are covered in most cases by your condominium master policy, their replacements often aren’t.
How can I tell if I’m underinsured?Sign in on pemco.com to look up your homeowners insurance policy and check Coverage A, Dwelling. That shows the current amount of coverage for reconstruction of your home’s structure (not including your belongings). Next, check Coverage B, Other Structures. That’s the amount you’d have for things like outbuildings, fences and paved driveways.
At first glance, the numbers may seem off. But remember, insurance is based on costs to repair or rebuild your home – not its market or tax-assessed value – and it doesn’t include the land your home sits on. If you’re not sure, reach out to your local PEMCO agent for help or call 1-800-GO-PEMCO to talk with a PEMCO representative.
“Reconstruction” is different from new-build and market pricing in important ways. For example, even though real estate prices have skyrocketed, especially in certain areas, prices for individual building materials like lumber, sheetrock, siding and appliances are more consistent (for example, a sink in Renton, Wash., costs the same as a sink in Bellevue, Wash., even though the value of homes in those areas – located a few miles apart – are different).
Reconstruction also requires certain extras since, room-for-room, it costs more to repair homes than to build a new housing development from scratch. For example, your contractor won’t get a volume discount for buying 12 refrigerators at once and they’ll need to take extra steps to preserve your existing landscaping.
The age of your home enters the equation, too, since the older it is, the more likely your home will need upgrades during repairs to meet current building codes.
How does my policy protect me against unexpected costs?When you buy or update your homeowners policy, PEMCO considers all those variables. For added peace of mind, we also automatically adjust coverage for your home to keep pace with labor costs in your area and add a 25% “extended replacement” buffer against the unexpected.
The buffer helps, for example, if your home suffers smoke or water damage and needs work like drying out or demolition before reconstruction can begin to restore it to its insured value. Maybe belongings will need to be removed and placed in storage. Or, in the case of a natural disaster like a windstorm, when many homeowners are impacted, the cushion protects you against hikes in labor and materials costs.
You receive the buffer automatically as long as you insure your home to 100% of its value (using either an inspection or, more commonly, the valuation information you provide when you buy a policy) and agree to notify us within 60 days of any remodeling or construction that changes the value of your home or other structures. Qualifying for the buffer is another great reason to make sure your insurance is up to date!
If you want even more extended replacement coverage, you can increase your total replacement coverage to 150% (rather than 125%) of your home’s insured value by purchasing an extended-replacement endorsement. (An endorsement is extra, optional coverage available for an additional fee.)
How should I prioritize remodeling projects (from an insurance perspective)?
We always say focus on function rather than flash. For example, if you have a roof that’s about to start leaking, replace it. If you have water in your basement, get rid of it. If your siding or gutters are damaged, replace them. If you have plumbing problems, fix those. All are potential sources of water damage, rot or mold. The same goes for heating or electrical problems, which are potential sources of fire.
Once they’re good, you can relax and truly feel good about cosmetic or value-added projects.
Which remodeling projects add the most value?
If you plan to stay in your home indefinitely, prioritize projects that you’ll enjoy. If resale is on the horizon, know that some improvements pay off better than others. New garage doors, it turns out, are big winners. They’re not too expensive and often pay for themselves at resale because they take up about 25% of your home’s exterior and make a big impact on curb appeal. The same is true for a new front door and a composite deck.
Inside, your money is best spent on a minor kitchen remodel that doesn’t change its basic footprint – swapping laminate counters for stone or solid surfaces, refacing or repainting cabinets and switching to stainless steel appliances. If your home has only one bathroom, adding a second is often worth it at resale. It’s also something your family will use as long as you live there.
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Be careful not to over-improve relative to your neighborhood. Top-of-the-line appliances and main bedrooms that resemble studio apartments can push a mid-priced home into the high-priced range and make your home harder to sell. Some improvements like swimming pools and elaborate landscaping can turn off buyers who see unending hours of upkeep ahead of them.
How can I check if I have enough coverage?
You are entitled to a free coverage checkup at any time. Insurance is the bedrock of a sound financial plan, protecting you from the what-ifs that could derail your security. We’re happy to answer questions about your policy and what you get for your premium dollars.
Talk to your local PEMCO agent or a PEMCO representative if you’re thinking about a home-improvement project. And whenever you have an important life change – like kids going off to college or welcoming a new family member – let us know. We’ll talk through what it might mean to your insurance so you can worry less and live more.
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