As COVID-19 shuttered businesses and public spaces around the country, Americans were forced to spend more time at home. As free time mounted, more and more people took on new home alteration projects. How many 500-piece puzzles can one household do before needing a new hobby?
Kitchens, bedrooms, bathrooms, basements and various other rooms were renovated at a historic level. Home expansion projects increased exponentially as well. While homeowners are likely aware of the impact these projects can have on the market value of their home, the important factor to consider for insurance purposes is the impact on the replacement cost of their home.
If you are one of the many Americans that took on a recent home improvement project, it is vital that you notify your insurance agent or carrier. Your Coverage A - Dwelling amount is one of the most important coverage figures on your homeowners policy. Not only does it represent the estimated cost to replace your dwelling structure, it also sets the foundation for various other coverages on your policy that are often based on a percentage of Coverage A - Dwelling (i.e., Coverage B - Other Structures, Coverage C - Personal Property, Coverage D - Loss of Use).
An equally important consideration is that failing to notify your insurance carrier of an increase in the replacement cost of your home could leave you in violation of the agreements set forth in your policy. Do you have a guaranteed or extended replacement cost endorsement on your policy? If so, your policy likely requires that you notify your insurance carrier within 30 days of completing an alteration project that raises the replacement cost of your home by 5% or more. Even if you don’t have one of these endorsements in place, you’re likely required to insure your home for at least 80% of its replacement value in order to be paid on a replacement cost basis (rather than actual cash value). If you fail to notify your carrier, you may find yourself with inadequate coverage in the event of a loss.
Before making any renovations, discuss the planned work with your agent to ensure you have the proper coverage in place. Depending on the scope of the project, your carrier may require you to add a construction endorsement to your homeowners policy before you begin work. This endorsement typically extends coverage during short term renovations to include certain increased construction costs due to a covered loss, building materials and related liability events. If you plan on living away from the home or if the project is expected to take more than a month or two, you will likely need to find an alternate policy entirely (i.e., builder’s risk policy).
Have you altered your home since you first implemented your insurance policy? If so, you should reach out to your insurance agent ASAP to confirm that your policy adequately covers the true replacement cost of your home.