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Does Homeowner’s Insurance Cover Renovations After Damage?

When disaster strikes your home, the aftermath can be overwhelming. Whether it’s a force of nature or an unforeseen accident, the damage to your home is never just physical—it’s personal. One of the first questions that may cross your mind is: Will my homeowner’s insurance cover the renovations needed to restore my home? It’s a valid concern, and navigating the intricacies of insurance claims can feel like traversing a labyrinth without a guide.

At Lamont Bros. Design & Construction, we understand the importance of rebuilding not just the physical structure, but the comfort and security of your home. With years of experience in custom home remodeling and a strong understanding of the insurance process, we’ve guided many Portland homeowners through the restoration journey.

In this article, we’ll discuss the critical aspects of homeowner’s insurance and what renovations it will cover after damage. Moreover, we’ll guide you on how to select the right contractor who can be an advocate for your needs. Once you’re done reading this article, you’ll have a better understanding of what renovations your homeowner’s insurance will cover and how you can proceed with repairing the damage done to your home. Specifically, we’ll discuss:

Understanding Your Homeowner’s Insurance Coverage

It’s essential that you understand the scope of your homeowner’s insurance coverage before beginning the restoration process. It’s the blueprint that outlines what you can expect in terms of financial support for your renovations after damage has occurred. However, not all policies are created equal, and the coverage can vary significantly based on your specific plan and provider.

Replacement Cost vs. Actual Cash Value

At the heart of your policy’s coverage is one of two crucial terms: replacement cost or actual cash value. These clauses in your insurance contract determine how much the insurance company is willing to pay out for the damaged parts of your home.

Replacement Cost Value (RCV) is the amount it would take to replace or repair your damaged property with materials of similar kind and quality, without deducting for depreciation. This means if your kitchen cabinets are damaged, your insurance is designed to cover the cost of installing new ones that are of the same quality as the old. Insurance policies that cover RCV tend to be more expensive because the risk is higher for the insurance company.

Actual Cash Value (ACV), on the other hand, takes depreciation into account. This means the insurance company will pay you the amount those same kitchen cabinets were worth at the time of damage, not what they would cost new. This could result in a significant gap between the insurance payout and the actual cost of modern replacements.

Relocation Allowances

If the damage done to the home is to the extent that you need to move out, your policy should dictate the length of time that your insurance will pay for temporary relocation. Depending on coverage this could be anywhere from 3 months to 24 months. The amount that insurance would payout should be enough for the hotel or rental while your repairs are underway.

Considering Upgrades During Restoration

When your home is undergoing restoration, it may be an opportune time to consider any upgrades you want to implement. However, it’s important to understand how these upgrades are handled in relation to your insurance coverage.

Understanding Policy Limits on Upgrades

Homeowner’s insurance policies typically cover repairs to restore your home to its pre-loss condition. If you’re considering upgrades beyond this scope—such as custom kitchen cabinets or high-end flooring — you’ll be responsible for the difference in cost.

For example, if you decide to upgrade from laminate countertops to quartz during kitchen repairs, your insurance may only cover the cost equivalent to the original laminate. You will need to pay the difference between the two.

Keep in mind that if you choose to upgrade parts of your home, you’re still getting a huge discount because of the amount your insurance company is contributing. You don’t have to pay for the entire cost of the upgraded features, only the cost that goes above the value of the pre-loss condition.

Making upgrades during the claim process, such as adding a freestanding tub in place of a fiberglass insert, might cost you more out of pocket.

Code Upgrades

Upgrades required by law due to changes in building codes since your home was originally built are a different matter. These code upgrades are often necessary for the home to be compliant and may be required as part of the repair process. While some insurance policies include ordinance or code coverage for such situations, others may not. In such cases, the homeowners are responsible for the difference in cost.

If your insurance policy does not cover these legally required upgrades, or if it only covers them up to a certain percentage, you’ll need to budget for these additional expenses. It’s important for you to discuss with your insurance adjuster whether your policy has ordinance or law coverage and understand the limits of that coverage.

Collaborating with Your Insurance Company

When making upgrades, it’s also important to keep your insurance company informed. While they may not cover the cost of upgrades, they should be aware of the changes to your home so that those expenses can be kept separate from insurance payouts. Additionally, if the upgrades are related to code compliance, your insurer may need to reassess your coverage needs.

How Do Insurance Companies Estimate Repair Costs?

When it comes to estimating the costs of repairing your home after damage, insurance companies have their own methods of determining how much renovations should cost. This may lead to discrepancies between your contractor’s bid and the insurance company’s expectations.

Estimation Software and Their Impact

Insurance adjusters commonly use specialized software to estimate repair costs. These programs are designed with the insurance industry’s cost considerations in mind, which often do not align with current market rates for construction products or labor.

As a result, the figures they produce can be significantly lower than what a contractor would quote for the job. This is because the software’s pricing data may not be updated to reflect the true current costs of materials and labor in your local Portland market. It’s also worth noting that these systems are designed to keep the cost to the insurance company as low as possible.

Depending on the dollar amount of the claim, you may go through multiple adjusters. Some adjusters are only allowed to authorize up to a certain dollar amount. As the repair cost increases through the assessment of the work being done, you may graduate to adjusters who can authorize the increased dollar value. This may mean that you may need to “start over” with each adjuster as you bring them up to speed on the repairs needed to return to pre-loss conditions.

Underestimating Renovation Costs

Insurance companies’ tendency to underestimate renovation costs can leave homeowners in a difficult position. The initial payout offered by the insurance company might not be enough to cover the full cost of the repairs when done to the standard you expect.

It’s not uncommon for these estimates to account for only the bare minimum that would technically meet the definition of repair, rather than what would restore your home to its pre-damage condition.

Carpenters working on a home renovation

Challenging the Estimate

It’s important to note that you have the right to challenge the insurance company’s estimate. You can obtain independent quotes from contractors of your choosing to provide a more accurate picture of the costs involved.

A contractor experienced in negotiating insurance claims can be invaluable in this case. They can ensure that all necessary repairs and costs are included in the estimate they provide to the insurance company.

The Role of Depreciation

Depreciation also plays a significant role in how insurance companies calculate payouts. They may offer you the actual cash value of the damaged elements of your home, which includes a deduction for depreciation. This means you might receive less than what it would cost to buy new materials or pay for current labor rates. Understanding how your insurance company handles depreciation is crucial when reviewing their estimate.

Navigating The Insurance Claim Process

The insurance claim process can be complex, but understanding how to navigate it effectively can make a significant difference in the outcome of your renovation project.

1. File a Claim

As soon as damage occurs, your immediate action should be to contact your insurance company to report the incident. Prompt communication is key.

2. Initial Remediation

The homeowner’s insurance company will cover the cost for you bring in a remediation company to begin assessing and mitigating the damage before beginning renovations. Companies like Servepro are commonly recommended for this initial phase.

They will remove any damaged materials and dry out the area in the case of water damage. Their job is to prepare the space for repairs, creating a clean slate for renovation contractors to work with.

Home remediation may involve stripping walls down to bare studs and setting up air dryers.

3. Working with Insurance Adjusters

When you file a claim, your insurance company will assign an adjuster to assess the damage. This is where the documentation you’ve gathered will come in handy. Present your evidence to the adjuster to ensure all damage is accounted for in their report.

Remember, the adjuster works for the insurance company, and their primary goal is to settle the claim for as little as possible.

4. Gathering Multiple Bids

Obtaining multiple bids is not just about finding the best price; it’s about finding the best value. Different contractors may have varying levels of expertise and proposed solutions for your repairs. Comparing bids can give you a clearer understanding of what needs to be done and at what cost.

5. Communicating with Your Insurance Company

Throughout the claims process, maintain open communication with your insurance company. If there are disagreements about the cost of repairs, don’t hesitate to negotiate. Provide the bids you’ve gathered from contractors and discuss why the higher costs might be justified.

If necessary, you can also seek the assistance of a public adjuster or an attorney who specializes in insurance claims.

How to Choose a Contractor for Home Renovation

Finding the right contractor is perhaps the most crucial step in the renovation process after an insurance claim. The right contractor will not only perform the necessary repairs but also serve as your advocate in dealings with the insurance company.

Select a Contractor Who Understands Insurance Claims

It’s essential to work with a contractor who has experience with insurance claims and understands how to navigate the complexities of the process. They should be able to help you understand your policy, the scope of work covered, and how to ensure that the insurance company’s payout is fair and sufficient to cover the quality repairs your home needs.

Sometimes more damage is discovered in the construction process than was originally thought. This may require additional insurance receipt submissions. Ensure you work with a contractor that can file the necessary invoicing and receipts during the construction so that it doesn’t hold up the job.

During one of our recent projects, we found a lot of water damage when the roof was removed to complete the repair. Fortunately, insurance paid for the repair, however, they required extensive documentation to justify the added expense.

Request a Detailed Scope of Work

A detailed scope of work from your contractor is vital. This document should outline every aspect of the repair process, including materials, labor, and timelines. It serves as a contract between you and the contractor and as a tool for the insurance company to understand the necessary repairs.

Beginning your project with a complete set of designs is a great way to ensure that you have a scope of work to present to your insurance.

Advocate for Quality Repairs

Your contractor should be willing to advocate for quality repairs to the insurance company. This means they may need to communicate directly with the adjusters to explain why certain materials or methods are necessary to restore the home to pre-loss condition.

How to Finalize Your Claim & Begin Repairs

Finalizing your insurance claim and beginning repairs can be a satisfying conclusion to a challenging process. However, there are a few key steps to ensure everything goes smoothly.

Starting the Repairs

Contrary to common belief, you can begin renovations before the insurance claim is settled. Before beginning work, ensure you have a clear contract with your contractor that defines the scope, budget, and timeline.

At this point, your insurance company should be able to write a check for a partial amount, allowing the work to begin. Regular communication will be essential throughout the repair process to ensure everything is proceeding as expected.

Understanding the Final Settlement

The term “final settlement” is often used by insurance companies, but in reality, your contractor may continue to submit receipts and invoices to your insurance companies until the project is complete.  The “final settlement” is not final until all costs have been accounted for and the home is restored to its original condition.

If negotiations stall, homeowners may need to consider legal action to ensure that their insurance policy is honored in full.

Preparing for the Unexpected

Even with the best planning, renovations can uncover additional issues once work begins. It’s wise to have a contingency plan for additional expenses or delays. Discuss with your contractor and your insurance company how unforeseen issues will be handled before work starts.

Want to Talk to A Professional Remodeler about Your Repairs?

Navigating the insurance claim process and managing home renovations after damage can be daunting. Now that you understand more about whether your homeowner’s insurance will cover renovations, you can begin planning how to restore your home to its previous condition. To continue your research, download our free guide, “3 Steps to Choosing a Contractor.” In it, you’ll find everything you need to know to find a contractor who aligns with your needs and vision.

Ready to talk to a professional remodeler about repairing your home? Click the button below to schedule a free meeting with a member of our team. We’ll help you navigate the challenges of home renovations while working with your homeowner’s insurance company to ensure you receive all the repairs your insurance should cover.