Insurance can protect your pandemic renovations

Consider all factors when calculating replacement cost after home renovations.

If you are like millions of other people, during the pandemic you have made improvements to your property. Whether you installed a pool, remodeled rooms or finished your basement, now is a good time to check in with your independent agent to ensure your homeowner coverages are still adequate.

The first thing to understand is how remodeling an existing space versus adding a space affects replacement cost.

REMODELING

You may think coverage needs to be increased by the amount it cost to renovate a space. But during renovations, existing materials already reflected in the replacement cost of the home are replaced with new materials. The cost of the existing materials needs to be considered.

Additionally, while these new materials may be more aesthetically pleasing, they may or may not be of higher quality. For example, replacing existing cabinets with stock cabinets from your local home improvement store may not be the same as replacing them with custom-built units. The new cabinets may have been built specifically for the space or with custom or semi-custom features like self-closing hinges, glass panels, dovetailed drawers, etc. Even though a kitchen renovation may have cost $50,000, after considering the original kitchen materials, the overall replacement cost may have increased by only $20,000, or not much at all.

ADDING SPACE

If you added square footage or converted a previously unfinished area to finished, no existing materials were replaced. Consequently, the replacement cost is typically much closer to the actual cost of the renovation itself. Probably the most common example of this is finishing a basement.

In this case, the existing foundation walls – typically concrete – and flooring of the unfinished basement area would have been calculated in the replacement cost of the home, so adding the cost and materials used to finish the space to the replacement cost would be appropriate.

Note: homeowners often take on renovation projects on their own, keeping costs lower than if a licensed contractor completed the work. Since it is rare that the homeowner would make the repairs after a loss, additional cost for hiring a contractor needs to be considered when calculating replacement cost.

If you have completed any renovations or additions to your home, please contact your local independent agent. They will collect the necessary information and determine whether any changes need to be made to your policy.

Coverages described here are in the most general terms and are subject to actual policy conditions and exclusions. For actual coverage wording, conditions and exclusions, refer to the policy or contact your independent agent. Claim scenarios are for educational purposes only. Every claim is adjusted according to its own specific set of facts. Whether or not insurance coverage would apply to any claim is dependent on the facts and circumstances of each individual claim and the language of the insurance policy.