Being underinsured is one of the biggest (and costliest) mistakes we see homeowners make. Not having enough insurance can land you in a financial mess if something disastrous occurs. A lot of people don’t know when they’re underinsured, though. In this article, we’re going to give you some common home insurance scenarios when you should consider increasing your limits to ensure you are fully and totally protected.

You’ll want to increase your home insurance limits if:

1. You add square footage to your home

The main policy included with homeowners’ insurance is dwelling coverage. This covers the cost to rebuild the structure of your house. If you add square footage to your house, the structure of your house is bigger, and thus the cost to rebuild that structure is higher.

It’s not just the actual square footage that matters. The materials, type of rooms, and other factors also come in to play, like:

  • Type of exterior wall construction (frame, brick/stone, veneer)
  • Style of house (ranch, colonial, duplex)
  • Number of rooms
  • Number of bathrooms
  • Type of roofing
  • Type of interior materials used
  • Special features (arched windows, fireplaces, trim)
  • Custom built features

The same is true of any other structures on the premises, like garages or sheds. If you’re adding any “livable” space to your home, your insurer will want to know the use and the materials to adjust your dwelling and/or additional structures coverages accordingly.

Are you going through a home renovation? You may want to check out add-on policies like foundation collapse, construction material coverage, and unoccupied home insurance. 

Read: Will a Home Renovation Raise or Lower My Home Insurance?

2. You make upgrades to your home

It’s not just major renovations that can require higher insurance limits. If you’re renovating or upgrading any part of your home, you will likely also want to reevaluate your dwelling coverage. You’re changing the materials used and may be adding new appliances or systems, so the cost to rebuild that room would likely be more than it had before your improvements.

But there’s good news! Upgrading your home doesn’t automatically make your home insurance premiums more expensive. Even if your renovations will require higher coverage limits, your cost may be the same or even decrease if the upgrades make your home safer. For example, if you update plumbing, wiring, or heating, your insurer will likely see you as a lower risk for broken pipes, electrical fires, and water damage—so they may give you a discount on your insurance rate. Renovating your roof is another upgrade that can lower your homeowners annual premium; even if the roofing material is worth more and requires higher dwelling coverage, an updated roof is one of the best ways to prevent water damage and structural collapse.

Read: Will a Renovation Raise or Lower My Insurance?

3. The cost of construction in your area goes up

The “value” of your home on the market doesn’t matter in terms of insurance. If all of your homes are selling for higher than they were a few years ago, this won’t impact your insurance. (That is, unless homes are selling because the area is now considerably safer, which you can discuss with your insurer to possibly get a lower premium.) What matters is the cost to rebuild the structure.

Thus, if construction costs go up in your town or city, you may need higher dwelling limits. For example, if you used to have three major construction companies in town but now you only have one, your costs for rebuilding might be higher. Or if your part of town is suddenly the “hot” commodity, construction crews might charge more for labor.

Remember, the cost to rebuild your house isn’t just the square footage and materials/features of your home. The external factors of local construction prices, available labor, and demand for certain materials can also play a factor in your rebuilding cost. If these costs go up, your dwelling coverage limits may also need to be higher in order to rebuild your house with these factors in mind.  

Ask your insurance agent how they factor local construction costs into their appraisal and valuation of your home.

4. You add an attractive nuisance

Pools, trampolines, swing sets, and other fun (but risky) features are considered “attractive nuisances.” That’s because they attract kids (and adults) to play, but they have a high risk of personal injury. Due to this higher risk, they tend to be more expensive to insure. However, neglecting to tell your insurer that you’ve added an attractive nuisance like a pool could result in them denying claims or even canceling your home insurance altogether. That means you could be left in a financial lurch just because you didn’t divulge everything to your agent.

If you’re going to be adding anything like a pool or playset to your property, you’ll want to alert your insurer and make sure your contents coverage and liability limits are high enough to cover these items.

Learn how to avoid making your home’s features attractive nuisances here.

5. You buy something expensive

Often, your home contents coverage is a percentage of your dwelling limit. However, this percentage may not be enough to cover all of your personal belongings, especially if you own expensive electronics, jewelry, furniture, furs, fine art, etc.

Create an itemized home inventory with everything you own and how much it costs (attach photos and receipts to prove it). To make it easier, check out these home inventory apps that streamline this cataloging process. Then, work with your insurer to ensure all of your belongings are fully covered. Keep in mind that some insurers exclude or have low limits for certain types of belongings, like jewelry and collectibles, so you may need to purchase a separate endorsement for these valuables.

So, any time you purchase something expensive, you want to add it to your contents coverage home inventory and tell your insurance agent about it right away. For example, let’s say you purchase a beautiful but pricey bracelet. If the item is over your policy’s limit for a piece of jewelry (usually somewhere around $250 per item), it may not be covered. Make sure to speak to your insurance agent to determine the best way to guarantee coverage for your jewelry.

Any time you purchase (or are gifted) an expensive item, you want to consider checking in with your insurance agent to make sure you have the proper coverage in place.

6. Your liability risk goes up

Your homeowners insurance typically covers personal liability for a variety of home insurance scenarios. For example, if you participate in group sports (professionally or for fun), you could be at risk of injuring someone on the field. If you do, you could be responsible for their medical bills. Your homeowners insurance could help pay for part or all of these bills.

Other liabilities often covered by your home insurance include:

  • Having a high-risk job
  • Owning a business
  • Owning a dog, especially “aggressive” breeds
  • Having a “risky” hobby, like hunting
  • Being a well-known public figure
  • Volunteering or serving on a board
  • Participating in or coaching sports (including children’s sports)
  • Hosting frequent or large parties
  • Employing staff at your home (cooks, maids, etc.)
  • Having attractive nuisances, like pools
  • Having a high net worth
  • Renting out your property (active landlords may want separate landlord insurance, though)

If your liability has recently increased for any of these (or other) reasons, like you just got a new puppy or you’ve hired a nanny for your newborn, you’ll want to talk to your insurer about your personal liability limits with your homeowners insurance.

You want your liability limits to be at least the amount of your net worth in case someone came after you for “everything you’re worth.” For a lot of people, homeowners insurance liability limits aren’t high enough to cover their net worth, so umbrella insurance is a great supplemental policy. Umbrella insurance offers additional home and liability coverage starting at $1 million, and it works in tandem with your homeowners insurance to make sure you are fully covered against any potential liability situations.

Read: Do You Have Enough Liability Insurance?

Note: If you have recently started conducting business out of your home, we recommend you instead purchase business insurance rather than rely on your home insurance. Even if you’re a small business (or even a one-person operation), business insurance offers higher limits and greater coverage options to make sure you, your assets, your employees, and your clients stay safe.

Cost to increase home insurance limits

Your premiums are going to go up when you add coverage and raise limits on your homeowners insurance. That doesn’t mean you want to skimp on coverage, though. Having the right amount of coverage is the key to giving you peace of mind, no matter what sort of home insurance scenarios you run into. Rather than risking being underinsured, check out these 18 ways to lower your homeowners’ insurance premiums. 

Are you fully insured? Do you feel confident that if your home were completely destroyed or you were sued for “all you have” that your insurer would be there to cover you in totality? Do you trust your insurance agent and your policy, no matter what weird and wacky home insurance scenarios you might run into?

If you can’t confidently answer “yes” to all three of those questions, contact a licensed InsuraMatch agent. Let’s work together to make sure your home, family, and assets are protected from the mayhem of life.

Compare home insurance quotes with one of our expert insurance advisors at (844) 824-2887 today.

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