So you're finally tackling that kitchen remodel you've been dreaming about, or maybe adding that second story to accommodate your growing family. Exciting times! But here's something that might surprise you: your regular homeowners insurance probably won't cut it during the renovation. In fact, most standard policies specifically exclude coverage for homes undergoing major construction work.
Even more concerning? Many homeowners overlook notifying their insurance provider about major renovations. That oversight could leave you holding the bag for tens of thousands of dollars in damages if something goes wrong. Let's walk through everything you need to know about protecting your home—and your wallet—during renovation projects.
When You Need to Tell Your Insurance Company
Not every home improvement requires a call to your insurance agent. Repainting your bedroom or replacing kitchen cabinets? You're probably fine. But when it comes to major renovations, the rule of thumb is simple: if you're changing the structure or spending serious money, you need to loop in your insurer.
Most insurance companies want to be told about major renovations, especially projects that cost a lot, add space to your home, change the structure such as removing walls or adding a second story, or require building permits from your local government. Many policies require notification at least 30 days before construction begins, not after work is already in progress.
Why does this matter so much? Your standard homeowners policy is designed to protect a finished, occupied home. Once you start gutting walls and opening up your roof to the elements, you've introduced a whole new set of risks that your policy wasn't written to cover. Fire hazards increase with construction equipment and materials. Theft becomes more likely when contractors are coming and going. Weather damage can devastate an unfinished addition.
Understanding Builder's Risk Insurance
For substantial remodeling projects, builder's risk insurance is your best friend. Think of it as a specialized policy designed specifically for homes under construction or renovation. Unlike your regular homeowners insurance, it's built to handle the unique exposures that come with active construction work.
Builder's risk policies typically cover the structure itself as work progresses, building materials stored on-site or in transit, temporary structures like scaffolding and fencing, and damage from fire, theft, vandalism, weather events, and other covered perils. You can usually purchase coverage for 3, 6, or 12 months depending on your project timeline.
Here's something important to understand: builder's risk insurance for remodeling can cost up to 50% more than coverage for new construction. Why? Because working with existing structures involves more variables and higher risk, especially when you're making structural changes. That added cost is worth it, though, when you consider the alternative—being completely exposed during the most vulnerable period of your renovation.
Some homeowners can add builder's risk as an endorsement to their existing policy, while others may need a standalone policy. Your insurance agent can help you determine which approach makes sense for your situation. Companies like State Farm, Nationwide, and Chubb are among the providers offering strong builder's risk options for homeowners in 2024-2025.
Verifying Your Contractor's Insurance
This step is non-negotiable, yet many homeowners skip it. Before any contractor starts work on your property, you need written proof they carry adequate insurance. We're talking about two types of coverage: general liability insurance and workers' compensation.
General liability covers property damage and injuries that occur during the project. If your contractor accidentally breaks a water pipe and floods your basement, their liability insurance should handle it. Workers' compensation protects you if a worker gets injured on your property. Without it, you could be personally liable for their medical bills and lost wages.
Ask for a Certificate of Insurance—a document that spells out what coverage they have, the policy limits, and the insurance company's contact information. Don't just accept the paper at face value. Call the insurance company directly to verify the policy is current and in good standing. A reputable contractor will expect this request and provide the documentation without hesitation.
Also verify that any subcontractors working on your project carry their own insurance. Your general contractor should be managing this, but it's worth confirming. You don't want to discover after an accident that the electrician or plumber working in your home was uninsured.
The 80% Rule and Coverage Adjustments
Here's a critical concept that trips up many homeowners: the 80% rule. Most homeowners insurance policies require your coverage to equal at least 80% of your home's current replacement cost. When you complete a major renovation that adds value to your property, you've likely increased that replacement cost—sometimes significantly.
Let's say your home was insured for $300,000, which met the 80% threshold before your renovation. You then invest $80,000 in a major kitchen remodel and bathroom addition. Your home's replacement cost has now increased, but your coverage amount hasn't budged. You've become underinsured. If you need to file a claim, your insurance company may reduce the payout proportionally—even for claims unrelated to the renovation.
The fix is straightforward: contact your insurer once your renovation is complete and request an adjustment to your coverage limits. Yes, your premium will increase, but you'll have the protection you actually need. Think of it as protecting the investment you just made in your home.
Permits, Documentation, and What Insurance Won't Cover
Building permits aren't just bureaucratic red tape—they matter to your insurance coverage. Many policies require that major work be done with proper permits and inspections. If you skip the permit process and later need to file a claim, your insurer might deny coverage for the unpermitted work.
Keep detailed records throughout your project: copies of permits and inspection approvals, contracts with your contractor and any subcontractors, receipts for materials and labor, photographs of the work in progress, and correspondence with your insurance company. These documents become invaluable if you need to file a claim or if questions arise later about the work performed.
It's also crucial to understand what insurance won't cover. Workmanship errors—when your contractor makes mistakes or does shoddy work—typically aren't covered by your homeowners or builder's risk policy. That's why choosing a reputable, insured contractor is so important. Their liability insurance should handle defects in their work, assuming they're properly licensed and insured.
Getting Started With Renovation Coverage
Your first call should be to your current homeowners insurance agent—before you sign a contract with a contractor, before work begins, ideally even before you finalize your renovation plans. Explain the scope of your project, including the estimated cost, timeline, and what structural changes you're planning.
Ask specific questions: Does my current policy cover this type of renovation? Do I need builder's risk insurance, and can it be added to my existing policy? How much will my coverage need to increase after the project is complete? What documentation do you need from me and my contractor? The answers to these questions will help you budget accurately for the full cost of your renovation, including necessary insurance protection.
If you're planning a major renovation in 2026, don't let insurance be an afterthought. The relatively small investment in proper coverage during your project—and the few minutes it takes to notify your insurer—can save you from catastrophic financial losses. Your dream renovation should improve your home and your life, not create a nightmare of denied claims and out-of-pocket expenses. Take the time to get your coverage right, and you can focus on the exciting part: watching your vision come to life.
