How Do Home Improvements Impact Replacement Cost?

People who purchase existing homes typically envision improvements that will enhance their leisure enjoyment and increase value. Some secure home equity loans and hire professionals to complete the improvements, while other handy DIYers go to work making strategic renovations themselves. Either way, when the last nail has been driven, too many property owners remain unsure about the new replacement cost. The new estimated Replacement Cost New is probably not reflected in your homeowner’s insurance policy.

That’s why everyday people consider using the Douglas Residential Cost Guide to recalculate their home replacement cost, factoring in any home improvements, upgrades, additions, etc. If you recently made significant home improvements or are considering ones that will positively affect the estimated Replacement Cost New, these are reasons to take advantage of the Douglas system.

How Do Home Improvements Affect Replacement Cost?

Most homeowners consider the cost of major renovations against the possible return on investment. In other words, if you spend $10,000 on an upgrade, you usually want to know how much that investment increases home value should you decide to sell. That reasoning makes perfect real estate market and business sense. However, property owners would also be well-served to consider the link between insurance coverage and replacement costs.

Home Reclassification:

Adding an in-law apartment or separating a portion of the home as a rental unit can change its designation. Your single-family home may now be considered a multi-family. It’s essential to update your policy after re-evaluating the estimated Replacement Cost New of your residence.

Renovation Values:

Upgrades such as new kitchens, expansive bathrooms, open floor plans, and additions usually garner a high return on investment. But as time goes on, the cost of replicating those home improvements also increases. Unless you possess an accurate replacement cost estimate, it’s virtually impossible to update your homeowner’s insurance.

Property owners who make home improvements are tasked with updating their insurance coverage. Although your return on investment could be quite lucrative should you list the home, you may be grossly underinsured right now. 

What Home Improvements Impact Replacement Cost?

Many types of renovations can affect your replacement cost. Some renovations will increase your cost, while others will decrease it and grant you a lower insurance premium. Before renovating, it’s worth considering if the renovations increase or decrease your insurer’s liability, as this will likely dictate how the improvements will affect your premium.

Renovations that Could Decrease Your Premium

  • Roof replacement

Replacing your roof increases your home’s safety and durability.

  • Updated plumbing and wiring.

Old wiring and plumbing are risky and often unsafe. Updating to newer, safer options can save you money, both in energy efficiency and in insurance premiums.

  • New HVAC system.

Installing a new furnace and/or air conditioner will make your home safer and more energy efficient.

  • Alarm and home security systems.

Ensuring your home is secure lowers the risk of burglary, along with your insurance premium.

  • Smoke and carbon monoxide detectors.

Updating these safety systems keeps you and your home safer.

Renovations that Could Increase Your Premium

  • Pools

Swimming pools are a liability and are costly to replace.

  • Home-based businesses

Operating a business out of your home will require you to have an additional policy in place.

  • Custom-made features

Custom features are also more difficult and expensive to replace.

  • Additions to your home.

Adding an addition increases the square footage of your home, which will inevitably drive up its replacement cost.

  • Kitchen and bathroom renovations.

These add value to your home, making it more expensive to replace.

Home Improvements that Have a High Return on Investment

Even though home improvements can increase your replacement cost (and your premium), many of them also have a high return on investment (ROI). For example, kitchen and bathroom upgrades can vastly increase the value of your home, leading to a higher selling price when you put your home on the market. Other examples include wood decks, window replacement, and siding replacements.

Douglas Residential Cost Guide Accurately Estimates Renovated Home Value

If you recently made a home improvement and have not updated your insurance coverage, the Douglas Residential Cost Guide remains an easy-to-use resource that puts 30 years of knowledge to work for you. The inexpensive online and hard copy options consistently pull together the latest construction data. A person’s home typically represents the largest financial investment you will make. Consider protecting it by using the Douglas Residential Cost Guide.