Did you recently receive a letter from your county’s assessment office? You know the one. It lists your home’s estimated market value so you can (gulp) prepare yourself for your property taxes. Whether your home increased or decreased in value, this may be a good time to also review your homeowners insurance policy.
Though your coverage may have kept pace with the cost to rebuild in case of a total loss, have you made any upgrades or purchases, such as an aboveground pool or trampoline, since you last chatted with your agent? Sure, these purchases seemed like good ideas at the time, making your home more livable or your backyard more suited to socializing, but they can also lead to higher homeowners insurance costs. People assume that their policy covers everything, but it has its limits, says Carole Walker, executive director of the Rocky Mountain Insurance Information Association. “You need to know what is covered and what is not, because it can come back to haunt you,” she says.
Insurance rates are based on a home’s replacement cost — the amount it would cost to rebuild your house in case of a total loss. A policy also covers the contents of your home and provides liability protection against claims, should someone be injured on your property.
Before you take steps to improve your home or add a “fun” element, such as a fabulous “she shed,” consider how doing so could affect you financially. Is the change covered by insurance? Is it dangerous? Is it going to affect the value of your property? Is it going to increase the risk at your home? This type of upgrade, Walker says, is “not necessarily a bad idea. It just may have financial consequences.”
What you don’t want to do is keep your insurer in the dark, says Michael Barry, spokesperson for the Insurance Information Institute. “Insurers look favorably on homeowners who proactively reduce risks on their property and let them know in advance of any major purchases or improvements,” he says.
There are three types of increases that your purchases might trigger.
Replacement cost. Any home extension, such as an additional bedroom, entertainment center, backyard kitchen, screened porch or finished basement, is going to add to your home’s value, because it expands your usable square footage, Barry says. Outdoor structures, such as a large, finished deck or a tricked-out shed, are viewed the same way as additional bedrooms when it comes to increasing coverage.
The same goes for those major home improvements, such as replacing carpet with hardwood floors or laminate countertops with granite. Remember: If it was expensive to build, it’s going to be expensive to rebuild in case of a loss. Policyholders who find themselves underinsured could face out-of-pocket costs.
Contents coverage. According to Kenton Brine, president of the NW Insurance Council, the more money you invest in an item, the more money it’s going to take to replace it. Although the contents of your home are covered as a percentage of your insurance policy, you may need to increase your overall coverage or purchase a rider — extra coverage — for pricey personal possessions.
“A $1,500 road bike may be covered, but a rad $6,000 electric bike may not,” Brine says. The same is true for high-end golf clubs, art, an ergonomic office chair, a Peloton-type exercise bike, a Pilates tower or new, sleek, chef-quality appliances, outdoor grills or firepits. A basic rider to insure that new treadmill or office equipment may cost as little as $25.
Liability. Big purchases to entertain yourself and your family are the ones that can make your home riskier in the eyes of insurers. Insurance companies call such purchases an “attractive nuisance,” meaning you have something that could entice children (and adults) into entering your property. If people are injured, you can be sued, even if they gained access to the equipment without your permission. Think swimming pools, trampolines, treehouses, playground equipment, archery ranges, homemade ice rinks or skate parks, a waterfront floating dock with a slide or even a serene koi pond. One other potential liability risk: a pandemic puppy. Fair or not, insurers don’t look favorably on some dog breeds, and adopting one of those may increase your premiums, Barry says.
Before you buy, talk to your insurance professional, Walker says. And if you’ve already made the purchase, talk to your insurance professional. Ask whether it’s included or excluded in your policy. Your agent may also be able to point out any city- or state-mandated safety measures (and those of your insurer) that you can take to minimize liability, such as adding fencing around a pool or a safety net around a trampoline.
“Find out what your policy covers under a worst-case scenario. Is it enough coverage, and is it the right coverage? Ask your agent what is excluded, and ask yourself what personal assets do you have to protect, should someone file a lawsuit against you,” Walker says.
“If you have added or are considering a pool, trampoline or a pricey piece of exercise equipment, contact your insurer as soon as possible, because each policy treats it differently, and you won’t know until you ask,” Brine says.
Then, decide if you want extra coverage. If you’re worried about someone going after your assets because of a personal injury or property damage, you may want to consider an umbrella policy, Brine says, which offers extra liability coverage that helps pay what you owe if you are sued for damages and have exhausted all other auto or homeowners insurance policies. You get a lot of bang for your buck on these policies; depending on where you live, Barry says, an umbrella policy of $1 million in coverage costs about $150 to $300 per year.
Looking for more helpful advice? The Insurance Information Institute has a number of consumer-friendly articles and videos on its website, iii.org, including one called “What is covered by standard homeowners insurance?”