Upgrading your home? Be sure to upgrade your home insurance

Crawford Frazer

The housing market has taken quite a hit. But not all homeowners are sitting on their hands, waiting for the winds of change to lead them to better homes. Instead, many are remodeling their own homes instead of moving into new ones, according to a 2011 study by Harvard University's Joint Center for Housing Studies.

But, while spending on remodeling is a boon for the economy, it could end up being a problem for homeowners if they forget to upgrade their home insurance.

Remodeling making a comeback

The Harvard center forecasts a steady growth of 3.5 percent per year in the remodeling industry between 2010 and 2015. This would be pretty remarkable, given that the industry grew about 2 percent a year from 1995 to 2007.

According to the Harvard center, the current market is feeding this growth. When people can't afford to invest in new homes, they tend to invest more in their current homes. Moreover, an increasing number of homeowners are renting out rooms for extra income -- prompting them to remodel.

How much coverage do you need?

At the time of its study, the Harvard center valued the home improvement market at nearly $300 billion. With expenditures of this magnitude, you'd think people would get home insurance that protects their investments.

But that may not always be the case. According to USAA, nearly two-thirds of U.S. homes are underinsured by an average of 19 percent because homeowners aren't adjusting their policies to reflect their updated home values. Say you update your kitchen and increase the size of your home. These changes could significantly increase your home's value. But if you don't increase the limits on your policy and your home is destroyed in a fire, you'll be stuck with too little coverage.

If you're going to remodel, consider the following:

  • Square footage: USAA says an increase in square footage is the most important factor in the need for additional insurance.
  • Interior enhancements: Hardwood floors and marble countertops are costly to replace.
  • High-end fixtures: Make sure your insurance covers the replacement costs of things like jetted tubs and valuable decor.
  • Exterior upgrades: If you replace your roof, install new doors or windows or replace siding with brick, these improvements also require enhanced coverage.

Insuring the remodeling work

In addition to insuring the final product, don't forget to insure the work being performed. The Insurance Information Institute and Better Business Bureau offer these tips for hiring contractors:

  • Upgrade your policy immediately. Inform your insurer before work begins -- just in case your home is damaged before the project is completed. In addition to higher coverage for the updated home value, you'll need general liability insurance that covers a contractor's errors.
  • Check your general contractor's insurance. You want to know that he or she has workers' compensation insurance to cover on-the-job injuries. Call the contractor's insurance agent and request a certificate of insurance.
Check subcontractors, too. Make sure that any subcontractors like builders, electricians and plumbers) have insurance -- or that you have enough liability coverage to cover them.

See how much you could save today on your home insurance. Get your free home insurance quotes today!