Home remodeling or renovation offers an exciting time full of changes. You watch as contractors transform your home into a showplace. Before you open the door to even one carpenter or plumber, consider your homeowner’s insurance and what it covers – or doesn’t cover.
What does homeowners insurance do?
Few homeowners clearly understand their homeowner’s insurance. Most individuals purchase a home with a mortgage loan, which requires them to purchase home insurance before taking possession of the house and moving into it. They typically purchase the first thing offered to them, rather than asking questions of the insurance agent. When something happens, they phone their agent or go online to file their insurance claims, learning that their policy doesn’t cover what they thought it did.
Homeowners insurance broadly covers a home’s structure and contents; it also offers coverage against specific perils named in the policy. The insurance industry offers eight different types of homeowners insurance, each with its own benefits:
- HO-1 – Basic perils coverage provides financial protection for structural damage caused by 10 named perils.
- HO-2 – Enhanced perils coverage provides financial protection for damage from 16 perils.
- HO-3 – All perils coverage for structural and personal property damage; insures the home using the replacement cost value of the market price of the home when it incurs damages.
- HO-4 – Renter’s insurance for individuals who rent their home from another person or organization only covers their personal property.
- HO-5 – Comprehensive coverage replaces the home and its contents using replacement cost value at current market prices.
- HO-6 – Condo insurance covers the interior of the condo and any attached patio or balcony.
- HO-7 – Mobile home insurance covers the same as HO-3 for mobile or modular homes with a foundation.
- HO-8 – Historical home policies that offer coverage for fewer perils, usually the same as an HO-1 policy.
Each policy contains liability coverage, and some provide loss of use coverage to pay for lodging when damage to the property precludes living there while it undergoes repairs.
That immense selection of choices and the knowledge that every insurance company offers different coverage options means you need to meet with your insurance agent and discuss the provisions of your insurance policy before you buy it. Some of the policies that offer more comprehensive coverage include limited coverage for renovation or remodeling work, but they’re rare. Instead of going uncovered, add home renovation insurance to your policy package.
What does home renovation insurance do?
Home renovation insurance protects your home while the remodeling or renovations take place. It covers added liability since your home doesn’t remain in the ideal state while undergoing construction. This special insurance policy also covers the materials you purchased, stored in your home and cost overruns due to construction delays. Some of these policies include foundation repair coverage that offers financial protection against foundation collapse.
When do you need a home renovation policy added to your homeowner’s insurance? Whenever you add to your existing home, you need this renovation policy. That means if you construct an addition, such as a new bedroom or home office, the policy covers the construction project. Also, add this policy if you decide to put in a swimming pool.
Let’s consider some common home improvement and maintenance situations and determine whether homeowners insurance or home renovation insurance covers it. This list can help you decide if you need to add to your insurance before contractors visit your home. It also might provide you with a few remodeling ideas that you have yet to think of for your home.
What does homeowners insurance do about home maintenance? When you hire any type of home maintenance services, whether HVAC or pool maintenance, you typically pay out of pocket for it. Unlike medical insurance which pays for preventative care, home insurance pays for the major repairs, but not the monthly or annual maintenance.
To save money on regular home maintenance, explore local service providers that offer maintenance plans. These pre-paid plans lock in a low price for services you need to keep your home running smoothly. Without this regularly scheduled maintenance, your insurance company could refuse to honor a claim you file, citing your lack of care for your home as the reason for the damage.
Hiring an Interior Home Designer
To answer the question of “What does homeowners insurance do about hiring a home interior designer?” we must consider two scenarios. If a named peril destroyed your home and the insurance company paid your claim, it fulfilled its commitment to you when it cut you a check for the value of the home. You can use that money to hire contractors, an interior home designer, purchase the materials to rebuild, etc.
Perhaps, though, you’re tired of the way your home looks. You just want to make a change and do it now! If you want to hire a home interior designer, you’ll pay out of pocket for it because home insurance doesn’t cover this.
Your Home Inspection
Let’s explore the question, “What does homeowners insurance do regarding home inspections?” When you purchase a home, it undergoes both a valuation and an inspection. Because you do not yet own the home, home insurance does not cover it. You pay out of pocket for the local home inspectors who make sure you purchase a habitable home that won’t require numerous repairs.
Insurance probably covers it when you hire home inspection services following a remodeling or renovation project that arose due to damage by a named peril. Legally, you must have your home inspected after a renovation when your municipality of residence requires it. U.S. cities and towns typically require an inspection; some unincorporated areas or named places may not since they lack a city government structure.
Hiring a Home Restoration Contractor
A named-peril damaged your home, but you can have it repaired. What does homeowners insurance do about home restoration contractors? As long as you hire this restoration contractor to repair damage caused by the named peril for which you filed a claim, the homeowner’s insurance policy typically pays for it.
Home insurance does not cover a home restoration contractor if you purchased a fixer-upper home. When you purchased the home on an “as-is” basis, you admitted to knowing that it requires repairs. You pay out of pocket to hire the home restoration contractor, or you make the repairs yourself.
Home Plumbing Needs
Your home requires plumbing repairs, so what do you do? The reason for repairs decides whether you file an insurance claim on your homeowner’s insurance. Do you need plumbing repairs, such as home repiping because a storm damaged the pipes? As long as a natural hazard named in your policy caused your pipe damage, the policy covers it.
What does homeowners insurance do about wear and tear damage? Homeowners insurance does nothing to cover a home for general wear and tear damages. Insurance companies and underwriters consider regular maintenance the job of the homeowner. If wear and tear damage occurs, it either stemmed from a lack of care or the time had come to replace the item.
More About Wear and Tear Damage
Consider these roofing examples to better understand how insurance companies handle wear and tear damage. The standard asphalt shingle roof lasts about 15 years. If a storm damages the roof in its fifth year, insurance probably pays for it, so move ahead with your roofing claims. However, if you replace an asphalt shingle roof after it has been on your home for 17 years because it wore out, home insurance does not cover it.
When your home’s roof needs replacement and insurance does not cover it, search the Internet for a local roofing company that offers financing or discounts that apply to you. For example, some roofing companies offer discounts to active and retired military personnel or teachers. Also, look for contractors that offer affiliate or referral programs, so you can earn money for your own repairs by helping the roofing contractor land other clients from among your friends and family.
Remodeling or Renovating Your Kitchen or Bathroom
When it comes to redoing your kitchen or bathrooms, and you ask, “What does homeowners insurance do?”, the answer remains the same. If a peril caused the damage, the insurance company pays for the kitchen and bath contractors and the materials. If you simply want to update the appearance of the kitchen or bathroom, it doesn’t cover anything.
Elective updates to your home always come out of your own pocket. Wear and tear damage also comes out of your own pocket. Consider ideas that can transform your bathroom or kitchen without large expenses.
Did the ceramic or porcelain wear off your bathtub? You can re-coat it, so it looks brand new, with a kit that costs about $50. That’s a huge saving since a new tub costs about $1,000, typically. Use the same type of kit to resurface your bathroom sink and kitchen sinks.
Paint the walls and ceiling. Paint costs little and you can do it yourself. Including the supplies, such as ladders, paint brushes, tape, rollers, primer, and paint, painting a small bathroom costs about $150. If you already own the application materials, paint remains the only cost, and it costs about $50.
Affording the Home Improvements You Desire
Now that we’ve answered the question, “What does homeowners insurance do?” and you understand why you need home renovation insurance to cover your work in progress, let’s consider how to make what home insurance does not cover more affordable. Because you will need to pay for elective items out-of-pocket, we’ll consider a few ways to come up with the funds. Some ways provided it all instantly, like a credit card, but could cost you more in the long run.
Many individuals remodel or renovate their homes one project at a time to make them more affordable. Although this may not appeal to you, it can help an individual or family to upgrade their living environment a little bit at a time by prioritizing the changes. Make a list of the projects you want to accomplish and prioritize them by need.
Each adult in the home could take a second job to increase their total household income. Agree that all funds from the second job go to the renovation fund. This can quickly provide funds for you to begin your renovations since most jobs pay either weekly, every two weeks, or monthly. This method lets you start your top-priority repairs almost immediately.
If you don’t mind taking out a loan, apply for a home equity line of credit (H.E.L.O.C.) through the bank that holds your mortgage. A H.E.L.O.C. provides a line of credit based upon the equity you’ve amassed in your home. That means you can borrow against the money you paid on your mortgage. Most banks will only let you access 80% to 90% of these funds, so if you paid $100,000 on your mortgage, you could probably take out a H.E.L.O.C. for $80,000 to $90,000.
For homeowners who aren’t considering a whole-home renovation or remodeling job, putting it on a credit card might provide a viable option. If you only want to update your bathroom or purchase new kitchen appliances, putting the purchase on a low-interest or zero-interest for the first year credit card can offer a quick way to make the changes. Nab a credit card that pays you cash back to earn back some of the funds you spent updating your home.
What does homeowners insurance do?
Now that you know what homeowners insurance does and what it doesn’t, you understand why you need to find other ways to fund your elective home remodel or renovation. Home insurance pays for damages to your home and sometimes your personal property in the event that a named peril damages it. The policy does not cover your desire to add crown molding to the living room or paint the bedrooms pink.