Home Appraisal - Update Your Insurance When You Renovate Your Home
You've hired a contractor and chosen your tiles, kitchen cabinets, and accessories. But there is one more important item to add to your to-do list for your renovations. And that's even more important than deciding to paint the walls moss green or eggplant. Review your home insurance policy and call your insurer.
You might have an unpleasant surprise if your home was not adequately insured for what it would cost to rebuild it after a natural disaster. With extreme weather events on the rise across the country, it's more important than ever to update your insurance policy when you're doing renovations.
In fact, your contract requires that you notify your insurer of any material changes before changes are made to your home. Even a renovation that you do yourself could affect the value of your home. It could, for example, increase the risk of fire or water damage.
Your insurance representative can answer your questions and reassure you. Taking a few moments to review your contract and consult with your insurance broker or agent will give you peace of mind as you put the finishing touches to your dream renovations.
Why is it important to check if I have enough insurance?
Your home is your most precious possession. With the increase in severe weather events, it's more crucial than ever to make sure your home is well protected. If your home is damaged or destroyed, it is very important that it be insured for its fair replacement value.
Your property is affected. Most homeowner policies cover contents up to a specific percentage of the home's total insured value. If your home is not properly insured, you may not have enough insurance to cover its contents in the event of major damage.
You have a contractual obligation. Under your insurance contract, it is your responsibility to report to your insurance professional any changes to your property, including renovations or additions. Also, if your insurance company has an accurate and up-to-date description of your home, it can speed up the claims process.
What's the difference between replacement cost and resale value?
Replacement cost is the cost of rebuilding your home if it were destroyed. This includes the cost and availability of skilled labor, site clearance, additional costs caused by a stricter building code, etc. Home renovations and improvements can also increase the cost of rebuilding over the original insurance policy estimate, affecting the final replacement cost.
On the other hand, resale value, or market value, is based on certain factors that do not have a direct correlation with replacement value (in other words, the cost of rebuilding your home). Relevant factors include the location of the house, the value of the land, and the price of other houses in the neighborhood.
Why is the replacement value higher than the amount I paid to buy my home?
Replacement value can exceed what you paid for your home for a number of reasons
Rebuilding your home may need to comply with a new, stricter building code.
The cost of demolition and preparation of the land for rebuilding is factored into the replacement cost.
The current cost of materials of similar quality may have increased since your home was built.
A contractor who just builds one house will not benefit from the same economies of scale as when he builds many houses in a single development.
Following a disaster such as a forest fire, labor and construction materials can become scarce, so construction costs rise.
Know Your Home
Most policies cover you on an annual basis. Each year when you need to renew your insurance contract, and before contacting your insurance professional, make a list of important details about your home.
Whenever you improve the value of your home, through renovations or the purchase of expensive goods, such as sophisticated electronic systems, please let your insurance professional know. In doing so, you will continue to have sufficient insurance in the event of a loss.
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