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Insuring your home during a renovation

Ginger Dean

March 13, 2014

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

Renovations should add value to the home and be cost efficient; the more money you spend on the reno, the less profit you will make.

If you are a real estate investor or a homeowner it's important to protect your money-making assets. Having insurance on your home helps protect those assets in case of natural disasters such as storms, fires, and flooding as well as damage due to human intervention such as vandalism and theft.

What type of insurance do you need?

If you're planning home renovations on an investment property you probably won't live in the house during the construction, which means the home is vacant. If you're renovating your own home, on the other hand, you have the choice to vacate the property or stay living there. Should you decide the house is unlivable during construction, you'll face the same issue: a vacant home. So what to do with the worry that the property won't be safe during your absence? Make sure you have the right insurance.

Insurance companies have different criteria depending on if it's in effect prior to closing or after closing. However, RealEstate.com says generally there two types of home insurance: homeowners insurance and a dwelling insurance. A homeowner's insurance policy generally includes the home's structure as well as the belongings in the home. A dwelling insurance policy does not cover belongings, making it an option for empty investment properties.

Check with your insurance company before starting a rehab

If you are buying a vacant property with plans to flip it for a profit or move in you may have a hard time finding a company willing to insure the home depending on where it's located. Insurance companies are in the business of risk. If the risk is too high to insure a property and keep it safe during a rehab you may not be approved for insurance.

Vacant homes in certain areas of big cities such as Detroit and Baltimore may be difficult to insure because they are boarded up, vandalized, and look abandoned when in fact they may just be homes owned by people who are planning a rehab. Investors like to buy cheap properties, fix them up, and sell them at a profit. This sometimes includes buying a home in a less appealing neighborhood that looks like it may have an attractive future.

How can you ensure your home is insured during a rehab?

Check with your insurance company before you buy a home. They will tell you if the home is in a high risk area. You definitely don't want to buy a property cheap and then be stuck without insurance because you didn't check with your company beforehand.

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