Renovating your home is exciting, whether you're updating a kitchen, upgrading a bathroom or finally tackling that long-awaited home addition. However, before the work begins, ensure your homeowners' insurance keeps up with your plans. Because renovations change your property's value and risk profile, reviewing your policy early helps you avoid unexpected coverage gaps later.
Why does insurance matter during renovations?
A standard home insurance policy may not fully protect you during renovations, especially if the project increases your home's value or introduces new risks. Many homeowners start renovations without realizing they may be underinsured. With construction and labor costs rising in recent years, many households may find their policy limits falling short if something goes wrong during a remodel.
Before you start: Understand how renovations affect insurance coverage
Recent data suggests that two-thirds of homeowners in the US are underinsured because policy limits haven't kept pace with rising construction and labor costs.1 Knowing how a remodel impacts your policy is essential to avoid being underinsured.
Your home's value may change
Renovations often increase your property's value, so it's vital to update your insurance to reflect its new value. Use these steps to stay protected without overpaying:
- Plan for structural changes: For major renovation plans, speak with an advisor early. You might wait until the work is finished to raise your limits fully, so you don't pay higher premiums before the new value actually exists.
- Document high-end upgrades: If you are adding high-end finishes such as marble or quartz, get professional cost estimates. Share these estimates with your agent to ensure your policy covers the cost of these premium materials.
- Create a safety net: Ask for an Extended Replacement Cost endorsement. This endorsement provides a buffer, often 25% above your policy limit, to protect you if construction costs rise during your project.
Protect yourself against building code costs
Ordinance and Law (O&L) coverage pays for mandatory upgrades required to bring your home up to current building codes during a repair. It's essential because standard home insurance only replaces what was originally there, leaving you to pay for mandatory upgrades, such as modern wiring or plumbing.
O&L also covers the cost of tearing down undamaged parts of your home if local laws require a total demolition after a partial loss. Verify with your advisor if the policy includes this specific coverage to ensure you're fully protected.
Home vacancy rules matter
If you move out during renovations, your coverage may change. Always tell your insurance advisor if you plan to be away to ensure your coverage remains valid — it's one of the most common reasons claims get denied during renovations. Your advisor needs to know in which of these three categories your living arrangement belongs:
- Vacant: The home has no residents or furniture. Many insurers limit or exclude coverage after 30 to 60 days.
- Unoccupied: The home is furnished but temporarily not lived in (you're living elsewhere, such as a rental or with friends or relatives).
- Occupied: You're living in the home during home renovation.
Real-life example: How home renovations can improve your insurance profile
- The plan: The owner installed a modern PEX plumbing system and a new roof.
- The result: Lower risk of leaks and water damage helped the homeowner qualify for better coverage and reduced annual premiums.
Watch common coverage gaps
Homeowners often realize they have insurance coverage gaps only when they file a claim. Key areas to address include:
- Water backup: Standard policies rarely include a Water Backup and Sump Overflow endorsement. Without it, repairing a clogged drain or sump failure can cost $10,000 to $20,000.
- Theft of materials: Uninstalled appliances or materials are often excluded if stolen from public or unsecured areas like driveways. Adding "Builder's Risk" coverage can help in such an event by insuring your materials from the moment they arrive on-site.
- Hidden leaks: Policies cover sudden bursts, but not slow leaks, which sometimes are discovered behind walls during demolition. Ask your advisor about a Hidden Water Damage Endorsement, which can help cover repairs for long-term leaks that were previously undetected.
- Solar panels: These systems increase home replacement costs by $15,000 to $25,000. Because some insurers view panels as structural liabilities or fire risks, they can lead to exclusions or policy cancellations. Adding a specific Solar Panel Endorsement helps ensure your system is fully covered against damage and liability.
- Contractor insurance: If a contractor damages your home, their General Liability insurance should cover the repairs. Relying on your own homeowners' insurance for contractor errors can lead to higher premiums and out-of-pocket deductibles, so ensuring their policy is active helps keep your own coverage as a secondary safety net.
- Inflation guard: Many carriers offer it to ensure your coverage automatically tracks with rising construction costs. While it may slightly adjust your premium, it's a vital safety net that prevents you from being underinsured when you need your policy the most.
Your pre-renovation checklist
- Consult early: Reach out to your Gallagher advisor as soon as you start planning — early conversations help prevent missed coverage needs.
- Verify the contractor's certificate of insurance: Ensure you are listed as an Additional Insured on the contractor's insurance policy. This coverage helps protect you if a worker is injured or accidental damage occurs during the project.
- Check liability: Ensure your liability coverage is at least 90% of your property value; for example, on a $500,000 house, your liability coverage should be at least $450,000, excluding land value, to protect against onsite accidents and potential lawsuits.
- Hire the right professionals: Always use licensed contractors who obtain proper permits for plumbing, HVAC and electrical work. Insurance companies often deny claims for projects that fail safety standards or are performed by unlicensed individuals. Using licensed professionals helps ensure your policy remains valid and your work is legally compliant.
When bigger projects require Builder's Risk coverage
For projects exceeding 10% of your home's value, you'll need a Builder's Risk policy to protect materials, fixtures and the structure during renovation — but it doesn't replace liability coverage, which your contractor must carry.
Asking for a Certificate of Insurance (COI) from your contractor is essential. Also, note the policy number and the carrier's name. If anything goes wrong, your contractor will be liable to fix any mistakes, and you can avoid a formal claim on your insurance.
In such a scenario, your advisor can act as a strategic consultant to help you decide whether you need to file a claim or not.
Protect your investment with the right advice
Renovations sit at the intersection of construction and homeownership — and your insurance should reflect that. While new upgrades can change your premiums, safety features like modern wiring or roofing renovations can often lead to premium discounts. A Gallagher advisor can help you understand how your plans impact your coverage and recommend updates without triggering a formal claim.
Ready to renovate? Talk to a Gallagher insurance advisor to make sure your coverage keeps pace with your home's transformation.
FAQs
How do smart home upgrades impact my premiums?
Devices like leak detectors and monitored security systems reduce the risk of large claims, often qualifying you for smart home discounts.
Do insurance providers require inspection reports after renovations?
Yes. For major property overhauls, insurers may require a 4-point inspection to confirm the work meets safety codes and to recalculate the home's replacement value.
Does a home warranty cover damage from renovations?
No. Home warranties cover normal wear and tear. Damage from improper installation or construction accidents is strictly an insurance matter.