If you are thinking of doing major home renovations and/or building an addition or garage, you may need to change your dwelling coverage limits to ensure your home is protected. The reason for this is pretty straightforward: you are adding value to your home, and your insurance coverage should reflect that greater value to properly protect you from a loss.
Informing your insurance company and/or agent is completely your responsibility as well – neither your bank (if you are still paying a mortgage) or any government agency will report your home improvements to your insurance company, so make sure that you discuss any major changes to your home with your insurance company as soon as you can.
While adding square footage to your home has a direct correlation with the need for greater home insurance coverage, renovations are a bit trickier. For example, if you are tearing down an old garage and replacing it with a newly built structure of approximately the same square footage, then the impact on your premium may be minimal.
However, if you are renovating an old kitchen or bathroom and significantly upgrading your fixtures and appliances (think marble or steel countertops, custom hardwood cabinets, and state-of-the-art appliances for example) then even though you may not be adding square footage, if you suffer damage in one of those areas of your house, and you haven’t informed your insurance company, then they will base your payout on the condition of the room before it was renovated.
The same issue would come up if your house was completely destroyed – if you had made significant changes that you did not report to your insurance company, you could possibly receive far less than your home was worth at the time of its destruction.
One last thing: remember that home improvement projects could also possibly lower your home insurance premium. For example, if you have an older home and are making upgrades to the electrical, plumbing or roof or if you are installing a security system regardless of the age of your home, you may qualify for discounts on your home insurance policy.