Tell insurer about remodeling to get full coverage

June 19, 2009


We did a fairly small ($6,000) remodeling job on our house in 2007. Now we are planning a bigger job that will involve lots of construction, including the addition of two new bedrooms and bathrooms. Are we required to report this information to our insurance company?

You aren’t required to report past home-improvement projects that you have already completed — nor must you let the insurer know about plans that you have made for a future remodeling or expansion project — unless the policy specifically demands such notification.

From a financial standpoint, though, there are several reasons why it would be best to contact your insurance company to let it know about the work that you completed in 2007 and the larger job that you are planning to begin soon. If you don’t, you could find yourself woefully underinsured if the home is damaged by a fire or natural disaster because your current coverage is primarily based on the size and condition of the property before you completed your first remodeling job two years ago.

To illustrate, say you obtained $200,000 in coverage several years ago but the remodeling job you completed in ‘07 and the work that you’re planning now would add another $75,000 to the cost of rebuilding the house if it was destroyed. The insurer would likely be obligated to pay a maximum of $200,000, less any deductible the policy includes: You would then have to pay the rest of the reconstruction costs from your own pocket.

Also realize that there is a chance that the contractor or a subcontractor might get hurt while working on the upcoming job. Although the general contractor may promise that all of his subcontractors are insured by his own policy, there’s no guarantee that his policy is up to date. If it has lapsed or contains strict exclusions, you could be held liable if someone is injured and files a lawsuit. To protect yourself, you may be able to arrange inexpensive, short-term coverage for all of the workers until the job is complete.

There is another key point to consider. If you plan to use common construction material and other items in your upcoming remodel, the increase in your annual homeowners premium won’t be very high.

But if the work will involve top-of-the-line products, such as hand-carved molding around the ceilings or expensive lighting and plumbing fixtures, you will need to let your insurer know about these high-end improvements to guarantee that your coverage will be adequate to replace such items with comparable material if disaster strikes.

Otherwise, the insurer might pay only for cheaper fixtures to replace those that were destroyed and pay little or nothing for the fancy molding around the ceilings of your new rooms.


madman 9 years ago

Too bad this is not accurate. You should check your contract with your insurance company. There is a thing called CO-insurance and any license agent would have to know this to pass the state insurance exam. If you are not with in 80% of what replacement cost is for you home you could be very disappointed in the way your claim is settled.

Referencing his example, if your home replacement value is $200,000 and then you do $75,000 of remodel increasing replacement cost to $275,000, you would only be insured at 73% of what your replacement cost. What is said in the article would probably be true in a total loss but, if you had a partial loss like a kitchen fire, and they determine you were underinsured (not hitting the 80% mark) they can depreciate the amount of that loss EVEN if you are at replacement cost. Most contracts that I have read that insured sign say they are responsible to let the insurer know of any updates that might effect the replacement cost value of their home.

You should check with your agent/insurance company on this and not assume anything.

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