Remodel or move: What to consider

Deciding whether to invest in home renovation or find a new home altogether can be a huge decision, both financially and emotionally. While a renovation can give you the freedom to further customize your home to your family’s unique needs, the process can come with unexpected challenges like permit delays, or additional costs like higher homeowners insurance premiums. While moving may seem like a simpler solution, it is also a significant financial and logistical undertaking. No matter which decision you go with, Bankrate can help you understand the home insurance ramifications of your decision to move or remodel.

How to decide whether to remodel your home or move

Deciding whether to remodel your home or find an entirely new house can depend on a variety of factors. A key consideration for most homeowners is price: is it more cost-effective to make improvements to your current home, or to list your property and find a new solution entirely? There are pros and cons to weigh along with each option.

Deciding to remodel

Perhaps your current location is hard to beat: proximity to work, school, family and friends may be a deal-breaker. Or maybe you have a sentimental attachment to your current home. No matter the reason, remodeling comes with benefits and drawbacks.

Pros

• May boost the value of your current home: You can generally expect a 70 percent return on investment for renovation projects. In addition to making your home a more comfortable place in the near-term, this could also boost your home equity in the long run.

• Can customize renovation to meet your family’s tastes and needs: Does your family value a large eat-in kitchen with a spacious island? Maybe a drop zone with enough storage for several children would make your daily routine easier. When renovating your current home, you can focus on making changes suited to your unique needs and wants.

• Can avoid the hassle, stress and expense of listing your home and moving: While moving may seem like the more straightforward solution, you still have to weigh the logistics of listing and selling your current home, finding a new one, and moving your belongings from point A to B.

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Cons

• Remodeling projects can be disruptive: As you tackle different parts of your renovation, you may have to readjust how you operate in your home. For example, you may find yourself without a fully-functioning kitchen or bathroom for longer than you expected.

• Risk of loss on your investment: While most projects add some kind of value to your property, not all home renovations will earn your money back. While you’re likely to recoup some costs on a new garage door (94 percent average return on investment) or a kitchen remodel (72 percent average return on investment), other projects — like many bedroom remodels — may end up costing you.

• Home insurance may increase: The new changes to your home may impact the amount of insurance needed to protect your dwelling or items, potentially causing the cost of your policy to increase to ensure adequate coverage.

Deciding to move

You may have outgrown your home in more ways than one, and you may have different needs or a different family structure than when you moved in. The decision to move to a new home can make sense in many scenarios, but it’s a significant undertaking both practically and financially.

Pros

• Chance to re-evaluate and reimagine what you want and need: Deciding to move means you can come up with an entirely new wish list, which may include features that are simply not possible in your current home.

• Opportunity to cash in on your home equity: Real estate tends to appreciate in value over time, meaning you may be able to tap into your investment if or when you sell.

• Chance to find a turn-key property: As opposed to the process of renovating, you can shop for a property that meets your needs now rather than living through months of renovations.

Cons

• Significant costs to prepare and list your home, pack, close and move: Listing and selling your home comes with its own set of costs. Depending on how long-distance your move is, you may spend hundreds or thousands of dollars getting your belongings to the new place.

• Commitment to a new property may limit your financial options for the next few years: Moving tends to only make financial sense if you plan to stay in the new home for at least three to five years. This can be limiting, if you have other life changes lined up.

• Stress of searching for a new home: Finding a home that meets your wants and needs can be time-consuming and stressful. What if you can’t find what you want within budget? What if your home sells before you find a new place? The stress of an average move can impact everything from your sleep patterns to your performance at work.

Will remodeling affect my home insurance?

A remodel will likely affect your home insurance costs because it impacts how much your insurance carrier might need to pay out to cover a claim of yours. The aforementioned pool could mean a hefty liability claim if someone slips and falls on the wet surface near it, for example.

Even renovations that do not heighten the risk of accidents at your home may require adjusting your coverage. Your remodel might increase the cost to rebuild your home after a covered loss, which means your insurance provider will need to modify your dwelling coverage amount to provide you with enough coverage.

Similarly, if your remodel involves bringing high-end appliances or new, more expensive furniture in to finish the space, you may need to increase your personal property coverage levels.

During the remodel, your property may be exposed to more risk. If you need to store materials in your yard before they can be installed, for example, they may need protection. Some homeowners insurance companies offer a temporary add-on called a builder’s risk endorsement to help layer on the protection you need while renovating. Your contractors should all have insurance, too. Confirm that they are properly licensed and have their own insurance policies to protect you before their work begins.

All told, renovating a house usually has a direct impact on the amount of insurance coverage a home needs. Save yourself from future headaches — and even huge out-of-pocket expenses — by factoring your home insurance into your decision to renovate or sell.

How much will remodeling affect my homeowners insurance?

Renovating a house does not always mean your home insurance costs will increase, although it might. In the “Should I remodel or move?” debate, you should know that some renovations can actually help you save on home insurance premiums.

Generally, if you plan to make changes that will increase the value of your home or the level of liability on your property, you should inform your insurance provider. Failing to do so could leave you with insufficient coverage right at the moment you need it most. In fact, it’s recommended that you always notify your home insurance company before starting a renovation project.

To give you a clearer idea of the way your remodel could affect your home insurance — and to help you decide if you should renovate or sell — it can be helpful to look up what specific renovations entail:

Adding square footage

When space is an issue, adding an extension can give you that home office you need or the finished basement for your teens to hang in, but it also means you need to update your homeowners insurance policy with your home’s updated characteristics and square footage. These changes might increase your premium since your dwelling coverage amount will likely increase.

That said, the update to your home insurance is well worth it. No one wants to be in a position in which they spend money on a renovation only to have the extension ruined by a disaster their policy could have covered.

Kitchen renovations

If you have plans for a relatively simple kitchen upgrade — like replacing your backsplash or painting your cabinets — you probably can skip the call to your insurance company. But if you will be investing significant money in your kitchen renovation, such as upgrading your countertops from laminate to granite or upgrading your cabinetry to custom-made cabinets, ask if your policy needs to be updated. Because a kitchen remodel can make your home more expensive to repair or rebuild, you may need a higher level of dwelling insurance coverage once your newly beautified kitchen is complete.

New pool

Adding a pool makes your home riskier to insure because of the heightened likelihood of accidents on your property. That said, you might want to review your liability and other structures coverage listed on your homeowners insurance policy should you get a pool to help make sure your property coverage is sufficient. If you are debating whether you really want a pool, it pays to talk to your insurance provider before you make a decision. Knowing how much more you will need to pay for your home insurance and the risk pools can create can help you make an informed decision.

Updated wiring

The good news is that some renovations might bring the cost of your coverage down. For example, bringing your wiring up to the latest building standards can mean a lower risk for your property insurer of paying out a fire claim. Because of that, the cost of your homeowners insurance may decrease if you update your electrical to the latest standards. Upgrading your wiring from outdated systems, like replacing knob and tube wiring, could even make your home eligible to insure with other carriers, giving you more opportunity to switch to a cheaper home insurance company if desired.

Roof replacement

A new roof is pricey, but it may help you save money on your homeowners insurance. In fact, this is one instance in which you definitely want to inform your insurance company. A newer roof means better protection for your home, and that can bring the cost of your policy down.

What happens to my home insurance when I move?

If all of this has you feeling like relocating is the call, you should know that there are home insurance impacts whether you move or remodel. Specifically, if you purchase a new house, you will almost definitely need a new home insurance policy for it.

If you will have a mortgage, your lender will likely require a home insurance policy as a condition for your financing. But even if you plan to pay cash for your new home, you probably want to buy coverage to protect your investment.

That means putting a policy in place when you take ownership of your new place and canceling your coverage at your old house if and when you sell it.

Frequently asked questions

• • Will home insurance cost more after a remodel?

    That depends on the renovation you have planned. Adding a pool will probably mean paying more, for example, but adding a new roof could bring the cost of your coverage down. The only way to know what your remodel will mean for the cost of your home insurance is to call your insurance provider and ask.

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  • Do I need insurance for my renovation?

    You may, especially if you plan a major remodel. Call your insurance provider to see what your options are. You may be able to add an endorsement to your policy to layer on protection while your project is underway, or you may need to buy a separate policy to be in force while you remodel.

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  • Is it cheaper to remodel or move?

    That depends on both the renovation you plan and the homes you would consider buying. You also need to factor in specific costs, like a builder’s risk policy, to protect a bigger-scale renovation or moving costs if you buy a new house. Crunch the numbers on your specific situation. To make sure you have the most (and most accurate) information possible, you may want to call your insurance company and have them price out both scenarios for you: the cost to insure your house after your remodel and the cost of a policy for the new house you may purchase.

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  • Does my home insurance company need to know about all renovations?

    If your project is purely cosmetic and will not impact the value of your home (think: a coat of paint or new window treatments), you may not need to inform your insurance company. Failing to notify your insurance of significant upgrades, though, can be risky: in the event you need to file a claim after the update is complete, you could wind up paying the difference out of pocket between your outdated coverage and the updated cost to replace.

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