Before You Build Out: The Hidden Cost of Home Additions

One of the biggest perks of homeownership is the ability to mold the home to your liking. Repainting the walls, getting a few accent pieces to decorate the entrance, adding a rug or two or other home additions can all work wonders for your living space.

But if you have a larger remodeling project in mind, you might want to consider whether its future payoff justifies the money invested. An important cost many homeowners overlook is their insurance premium—major projects like home additions will usually prompt a rate spike.

Can you avoid these two insurance pitfalls?

Swimming pool

A pool can surely ease the summer heat and in most cases, increase your property value. However, depending on the size of the pool, it can also bump up your insurance rate by 10 percent or more. In fact, insurance companies sometimes will not provide full liability coverage for pools because they’re viewed as potentially hazardous.

In other words, insurers expect to pay more for a pool owner than a non-pool owner. In order to get adequate coverage, you may have to take out an umbrella insurance policy on top of the basic policy. Along the same lines, a hot tub or trampoline stretches your insurance budget due to an elevated risk profile.

Adding a New Room

Whether it’s adding a bedroom, a sunroom, or any kind of new space, you are almost certain to receive a heftier insurance bill. Every new room increases your home’s square footage—a major factor in the insurance rate calculation.

The bottom line to home improvement is simply trying to avoid over-improvement. Your home may get edged out of the competition at time of resale if it’s the most expensive one in the neighborhood, in terms of insurance or value. Instead of breaking ground for major additions, consider low- to mid-price range projects with the best ROI (return on investment). Replace the front door or garage door to increase curb appeal and update your kitchen or bathroom to refresh the ambiance.

If you are wondering about what improvements may actually lower your home insurance, think security-related. A dead-bolt lock on the entry door is one example. A reliable security system that alerts the police in case of need can lower your insurance payout by 5 percent or more. Safety devices such as smoke detectors, carbon monoxide detectors and fire extinguishers are all inexpensive must-haves to help reduce the bill.