How insurance agents can guide clients through home renovation risk management, ensuring proper coverage and preventing costly gaps.
- Identify coverage gaps before construction begins. Standard policies often exclude renovation-related risks.
- Verify contractor insurance and licensing. Unlicensed work can lead to legal and financial headaches.
- Advise clients on policy adjustments. Major renovations impact home value and replacement costs, requiring coverage adjustments.
Home renovation projects bring significant improvements to a property, but they also introduce risks that homeowners may not anticipate. Proactive risk management is key to preventing financial losses, liability issues and coverage gaps during construction.
Insurance agents and brokers play a crucial role in guiding clients through these risks, ensuring they have the right coverage and safeguards in place. Identifying potential hazards and advising on policy adjustments can help homeowners avoid costly mistakes and maintain proper protection throughout the renovation process.
1. Assessing coverage needs before a home renovation
Reviewing a client’s existing homeowners’ policy before any renovation begins is crucial to identifying potential coverage gaps. In 2023, interior room remodeling was the most common renovation project among U.S. homeowners, meaning many policyholders may be unknowingly underinsured for construction-related risks.
Standard policies often don’t cover damage due to renovations, structural changes or theft of materials. Recommending additional endorsements — such as a dwelling under renovation rider or builder’s risk insurance — can help protect against these exposures. It’s also essential to confirm that liability coverage extends to contractors and subcontractors.
2. Verifying contractor insurance and licensing
Before a client hires a contractor, they should always require proof of contractor liability insurance and workers’ compensation coverage. This protects them if a worker is injured or causes property damage during the renovation.
Beyond insurance, it’s critical to ensure contractors meet state licensing and bonding requirements. Unlicensed work can lead to costly legal and financial issues. Homeowners should also consider adding indemnity agreements and hold harmless clauses to their contracts to help shield them from liability if something goes wrong.
Related: Homeowners remodeling risks when hiring contractors
3. Identifying structural and environmental risks
Home renovations often uncover hidden hazards that put homeowners at risk, making risk management essential. Common dangers include:
Asbestos, lead paint and mold
These are some of the most common dangers found in older homes; disturbing them can lead to harmful exposure. For example, lead can cause memory and concentration problems, as well as muscle pain in adults, making it a major concern during demolition or repainting projects.
Structural changes
Changes, like removing walls or adding extensions, can also affect a home’s insurability and compliance with building codes. To prevent costly setbacks and potential liability issues, advise homeowners to schedule professional inspections before starting major renovations.
4. Managing increased liability risks
Renovation sites pose liability risks to both workers and homeowners. Exposed wiring, unstable flooring and falling debris make safety a priority.
- Workers should always wear appropriate personal protective equipment (PPE), such as gloves, masks and eye protection.
- All work must comply with local building codes and regulations to prevent accidents and legal issues.
- Homeowners should install temporary safety measures like warning signs and protective barriers to keep unauthorized visitors out.
If a homeowner plans to DIY, they should understand that injuries sustained may not be covered by standard homeowners’ insurance, leaving them financially exposed.
5. Understanding policy implications of vacant or unoccupied homes
Insurance companies classify homes as vacant or unoccupied based on whether they’re furnished and actively lived in. An unoccupied home still has furniture and utilities running but is at risk for theft, vandalism and damage. Meanwhile, a vacant home is empty and presents an even higher risk. Therefore, most insurers require homeowners to live in the house within 15 to 30 days of the policy start date, though the exact time frame depends on the company.
If a home renovation stretches beyond that, encourage clients to buy vacant home insurance to stay protected. And to help them remain eligible, recommend proactive risk management strategies, like conducting regular property checks, maintaining security systems and notifying their insurer about construction timelines.
6. Evaluating the impact on home value and replacement costs
Renovations can increase home value, but they can also impact insurance premiums — sometimes for the better. Upgrading essential systems like wiring or plumbing can qualify homeowners for an insurance discount, especially if their residence’s infrastructure is outdated or no longer up to code. However, major improvements — like kitchen remodels or room additions — can raise the home’s replacement cost, meaning the current policy may no longer provide enough coverage.
That’s why it’s crucial to encourage clients to update their coverage after renovations to reflect the home’s new value. Otherwise, they risk being underinsured, which could lead to insufficient payouts if disaster strikes.
Related: Six ways to ensure your home is insured to value
Helping clients stay protected through wise coverage decisions
As an insurance agent, your expertise in proactive risk management helps clients navigate coverage decisions before, during and after home renovations. Encouraging regular policy reviews and risk assessments can help homeowners stay ahead of potential gaps, avoid financial surprises and maintain long-term protection for their investment.