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Do you know how remodeling can affect your home insurance policy?

January 12, 2016
Undertaking a remodeling project? Be sure you know how it may impact your insurance.

Planning on doing some home improvement in the new year? A few added additions or upgrades can go a long way toward refining the feel of your home and raising its value.

However, if you do take on any remodeling projects this year, be sure to make any necessary updates to your insurance policy. If you've made a significant improvement, such as a kitchen remodel or a bedroom addition, you might find your current home insurance policy does not cover the full value of your home anymore. As Angie's List noted, remodeling your kitchen, for example, can increase your home's value by $13,000 to $37,000 or more.

According to the American Institute of CPAs, it's important to get the value of your home assessed by your insurance company and have your policy updated. You also don't want to delay updating until after the work is completed. In fact, the AICPA recommends having the policy updated before the work even starts so that you're covered in the event of accidents or damage to the remodeling.

"Some changes you make to your home can actually increase your insurance rates.”

Improvements that affect your insurance

As Bankrate reported, some improvements, such as upgrading your roof, can also lower your insurance premiums by as much as 10 to 20 percent depending on the state where you live. That's because having a roof in good condition helps to protect your home against damage from rain, sleet, snow and hail, and greatly reduces the likelihood you'll file a damage claim. Your insurer may reward you for that reduced risk with a lower premium.

On the other hand, some changes you make to your home can actually increase your insurance rates. Pools are one of the biggest examples. While a great source of fun and relaxation, pools are also considered an attractive nuisance by most insurers and will likely increase your liability and your premiums. However, because pools are expensive to maintain and the risk of injury is high, it's essential that you contact your insurance agent and make sure your policy can help protect you.

Operating a business out of your home can also affect your liability. If you're thinking about converting a spare room into a home office be sure to have a talk with your insurance provider. If someone is injured at your house, but you also use your home as the base for your small business, your homeowners insurance policy might not be able to cover that liability claim. As Bankrate noted, homeowners insurance also wouldn't cover any damage to lost inventory in the case of fire or flood.

If you're planning to run your business from home in the future, be sure to contact your insurance agent to see what options you have for coverage, or compare offers between different providers. Some insurers will offer inexpensive business endorsements that can be added onto your current home insurance policy if you have minimum inventory or liability. Depending on your home business, this may be enough to protect you, or you might wish to shop around for a more comprehensive policy, especially if you have employees working from your home.