When Does a Home Improvement affect my Homeowner Insurance?

The amount of insurance on your homeowner policy is based on the Replacement Cost or the cost to rebuild the home. So when you make an improvement or renovation to your home that increases its Replacement Cost value, your homeowner insurance needs to be updated. However, not all improvements affect your home’s Replacement Cost value. Most minor improvements such as painting, new windows and doors do not affect the Replacement Cost value of the home because you would be replacing existing home features with those of similar kind and quality. However, any home improvement that adds a new feature or is an upgrade does affect your Replacement Cost value and your homeowner insurance policy. Here are just a few examples of improvements that do affect a home’s Replacement Cost:

- Adding a porch or deck

- Adding a new bathroom

- Adding central air conditioning

- Finishing a basement

- Building a garage

- Remodeling a standard kitchen to a customized kitchen

Why is it important to update your homeowner insurance?

1. The Home Impovement May Not be Covered – Most homeowner insurance policies require the value of the home on the policy to be maintained at 100% of its Replacement Cost value and any improvement affecting the Replacement Cost value must be reported to your insurance agent or company. Any improvement not reported most likely will not be covered in the event of a loss.

2. Some Losses May Not be Paid in Full - If the value of the home stated on the homeowner insurance policy falls below 80% of the Replacement cost value, all partial losses may not be fully covered. For example, if you have a covered $10,000 fire loss to any part of the home, you could end up receiving less than $10,000 if the home is insured to less than 80% of its Replacement Cost value.

Overall, it is important to understand that any home improvement may require insurance improvements too. Otherwise, those improvements may not be covered in a home insurance claim and any other home insurance losses may not be paid in full. Make sure to talk with your agent or insurance company to find out if your home improvments affect your specific homeowner insurance policy.

Have you made any home improvements that affect your insurance lately?

Chad’s question on what is covered and more importantly not covered is one of the most important questions to ask when purchasing home insurance. Some people believe everything is covered for all reasons but home insurance policies have exclusions and coverage limitations. One example of those limitations are the 11 Special Limits for insuring your belongings (Coverage C). Note that the list below is based on a standard HO-3 home insurance policy and the Special Limits may be different for your specific insurance company. Make sure to check your policy or talk to your agent for the details of your policy.

1. $200 on money, bank notes, coins, precious metals, stored value cards and smart cards

2. $1500 on securities, accounts, deeds, evidences of debt, letters of credit, notes, manuscripts, personal records, passports, tickets and stamps (limit includes cost to research , replace or restore the information from the lost or damaged material)

3. $1500 on watercraft of all types, including trailers, furnishings, equipment and outboard engines or motors

4. $1500 on trailers or semitrailers not used with watercraft of all types

5. $1500 for loss by theft of jewelry, watches, furs, precious and semiprecious stones

6. $2500 for loss by theft of silverware, silver-plated ware, goldware, gold-plated ware, platinum ware, platinum-plated water and pewterware

7. $2500 for loss by theft of firearms and related equipment

8. $2500 on property, on “residence premises”, used primarily for “business” purposes

9. $500 on property, away from the “residence premises”, used primarily for “business” purposes.

10. $1500 on electronic apparatus and accessories, while in or upon a “motor vehicle”. Accessories include antennas, tapes, wires, records, discs or other media

11. $1500 on electronic apparatus and accessories used primarily for “business” while away from the “residence premises” and not in or upon a “motor vehicle”. Accessories include antennas, tapes, wires, records, discs or other media that can be used with any appartus described above.

Now you can see that these “Special Limits” might not be so special if you have an expensive engagement ring or a large amount of business property at home. Fortunately most of the these limitations can be resolved by either using non-insurance risk reduction methods outlined in our prior blog post or by purchasing the right insurance for an extra premium. The key is to be aware that these Special Limits exist so as your belongings change or increase, your insurance provides the coverage you expect. Also look for our future blog post dealing with the business property limitation listed above and other exposures that home-based businesses face.

Leave a comment below and let me know if you were surprised by any of the 11 “Special Limits”.

Claims May Add Surcharges

Most insurance carriers surcharge an existing homeowner insurance policy once a customer submits 2 or more paid claims in a 5 year period. Even if a policy has 2 paid claims costing $500 or 2 paid claims costing $50,000 in a 5 year period, the homeowner insurance policy will still have the same surcharge. Thus, before submitting a claim it is important to consider the estimated cost of a claim and how much your insurance carrier may surcharge the policy.

A CLUE Records All Claims

In a our prior blog post “Get A C.L.U.E – A Carfax Report for Houses”, we talked about how a CLUE report shows homeowner insurance claims on a property for the past 5 years. However, did you know that all homeowner insurance claims submitted to the insurance carrier are documented on a CLUE report regardless if the claim is paid or not. Thus, it is always good to talk with your insurance agent to understand if your claim is covered or excluded before it goes on a CLUE report for the next 5 years.

Claims Information Can be Available to Buyers

Home buyers and real estate agents can now get a CLUE report by requesting the seller to purchase a CLUE Home Seller’s Disclosure Report from Choicepoint. This special CLUE report removes all the personal information about the property owner but it still has the 5 year claims history. Thus, it is important to remember that submitting a homeowner insurance claim could impact a future real estate transaction.

Overall, submitting a homeowner insurance claim can be a very smart decision but make sure to consider all the implications of a claim with your agent before submitting one. Being surprised when your next homeowner insurance bill comes in the mail or when you try to sell your home is never a fun experience.

Your credit score is extremely important these days. Like your social security number, your credit score follows you wherever you go, whether it’s to get a mortgage, apply for a car loan, purchase insurance or even to get a job. So naturally, if you know how to check your credit and if you’re armed with tips on how to improve your credit score, you will be in better shape than someone who isn’t.

Main Factors That Affect Your Credit Score

- Your payment history. The most important factor to a potential lender is whether or not you will pay your bills in full and on time. The more recent your good (or bad) payment history, the more important it will be for your credit score.

- Your outstanding debt. The more credit cards you have that are maxed out, the lower your score will be. Try to keep your credit card balances at 25 percent or less of your limits.

- The length of time you’ve been building credit. The longer your credit history, the higher your credit rating.

- The number of inquiries on your credit report. The more times you’ve applied for credit cards or loans, the more credit report inquiries will show up on your credit report. A higher number of credit report inquiries may indicate that you’re struggling financially. However, there is also a myth about inquiries. All inquiries received with a 14 day period are seen as a single inquiry; shopping for credit several times throughout the year can raise a red flag. So, for example, it does not hurt when you have an auto dealer have several banks check your credit when you buy a new car.

- Steady employment. People who are steadily employed are viewed as being better able to pay their bills on time.

- Late or missed payments

- Using more than 80 percent of your total amount of available credit

- Bankruptcy, liens or foreclosures

9 Ways to Improve Your Credit Score

1. Review your credit report for any errors and correct glitches that may not be accurate (but are still hurting your current score). You can obtain a free copy of your credit report by visiting www.CreditReport.com.

2. Refrain from opening a lot of new accounts over a short period of time, especially if your credit history is on the shorter side to begin with.

3. Pay your bills on time.

4. Don’t open any credit lines you probably won’t use. For example, don’t open a lot of store credit cards just to get the initial 10 percent discount.

5. Instead of moving credit card balances to lower rate cards, try to pay them off. Transferring balances can change the ratio of your total credit card balances to your total available credit lines, hurting your credit score.

6. Open a few new credit accounts, use them responsibly, and make your payments on time.

7. Try to use your credit cards less. Even better, pay them off every month. The bigger the space between your total credit limits and the balance you carry, the better.

8. Contrary to what you may have heard, don’t close old, paid-off accounts. Credit companies used to advise people to close old credit cards they were no longer using. But closing these cards shortens your credit report and makes you seem less credit-worthy.

9. Avoid bankruptcy. Declaring bankruptcy is one of the worst things you can do for your credit score. It may seem like the easy way out in the short term, but over time it will cost you tons in the way of high interest rates.

Overall, keep in mind that negative items on your credit report are a lot more powerful than positive items. A late payment can affect your score in a month or two, while making payments on time can take six to 12 months to improve your credit rating. Also remember that having too much credit can be as bad as not having enough, if your credit has been mismanaged.

Guest Post Provided by

Dean Loux
(717) 441-4375 Tel
(866) 619-3533 Fax

We have all seen the car commercial where the guy is on the used car lot and says “Show me the CARFAX®” before he purchases a vehicle. A CARFAX® report provides potential buyers a vehicle’s history of ownership, titles and accidents. The report allows buyers to make an informed purchase decision and gives them confidence that they are buying what is advertised. Did you know the same type of report is available when you buy a house too?

What about something like CARFAX® for houses? The CARFAX® for a home is called a C.L.U.E.® or Comprehensive Loss Underwriting Exchange report. A C.L.U.E.® report shows insurance claims made on a property for the past 5 years and insurance companies use this information for underwriting homeowner insurance (See a C.L.U.E. example).

However, home buyers can also get a C.L.U.E.® report by requesting the seller to purchase a C.L.U.E. Home Seller’s Disclosure Report for $19.95. Remember that the buyer or real estate agent cannot order the C.L.U.E.® report and it only can be provided by the seller or owner. The report shows the same claim history on the property that insurance companies use but it removes all of the seller’s personal information that they would want to keep private.

If you wouldn’t buy a car without the CARFAX® report, should you buy a home without a C.L.U.E.® report? Let me know your thoughts.