Your home is your most valuable asset, and carrying adequate insurance is one of the most important ways you can protect it.
The amount you pay for homeowners insurance every year depends on several factors, including your home’s value, your deductible amount, and a series of more complicated calculations to assess your home’s specific risk factors.
If you’re planning on making updates to your home, it’s important to understand how your homeowner’s insurance may change as a result.
Let’s look at two types of improvements that increase insurance premiums, and three can lower them.
Home Improvements That Can Increase Premiums
- Major Renovations
- Putting in a Pool
This is a broad category, and includes improvements ranging from room additions, kitchen and bathroom renovations, and finishing a basement. When it comes to major renovations that increase your home’s value, you might want to update your homeowner’s insurance policy accordingly.
While you may see an increase in your monthly premiums based on your home’s higher replacement cost, that extra cost may be well worth it. If you fail to update your coverage, any money you paid to renovate is essentially an unsecured investment.
The impact of adding a pool on your homeowner’s insurance premiums is two-fold. First, a pool typically increases your home’s value. Higher replacement cost comes with higher premiums. But pools also pose a series of safety risks that your insurer could become liable for.
Homes with pools are more susceptible to leaks that can impact the home’s structural integrity. Drowning-related deaths and injuries are also a matter of concern from an insurance company’s perspective.
Your insurance provider would have to pay out in the event of accidental or wrongful death or injury. In some cases, separate liability coverage for pool owners is required.
Home Improvements That Can Decrease Premiums
- Getting a New Roof and Siding
- Adding a Security System
- Updating Old Plumbing and Electric
The vast majority of homeowner’s insurance claims are related to wind and hail damage. If your siding and roof are old and in need of repair, your insurance company will consider them more susceptible to damage from storms and high winds and can pass those risks off to you in the form of higher premiums.
If you’re planning to replace your roof or siding (or both), be sure to check with your insurance company to see if your premiums will go down.
Always notify your insurance agent if you install a new home security system. Most homeowners with comprehensive home security systems can see a notable reduction in their annual premiums based on the reduced risk of claims related to burglary or home invasion.
Fully monitored systems will yield the most significant rate reductions, but even safety devices like smart locks and video-enabled doorbells can make an impact.
Outdated plumbing and electric systems are a huge factor for insurance companies calculating your premium rate. Outdated wiring—particularly in older homes with flammable insulation—substantially increases the odds of a house fire.
Damage from water leaks can wreak havoc on a home. Water and fire damage claims are some of the costliest in terms of payouts from insurance companies, a fact that you’ll see reflected in your premium costs.
From a safety standpoint, updating old plumbing and electric is always a good idea. As an added bonus, new systems means lower risk, and a lower risk means lower insurance premiums.
As a general rule, any changes to your home that impact that risk calculation can change your premiums for better or worse.
As much as homeowners want to avoid higher insurance costs, it’s important to notify your insurance agent of any major changes to your home.
In the event of a total loss or major claim, there’s hardly anything worse than finding out your coverage is insufficient. And in some cases, you may see lower premiums as a result of improvements.
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