Coverage Gap for a Home Under Renovation or Construction

How Renovations Affect Your Existing Coverage

Your homeowners policy insures your dwelling at a specific replacement cost value. When you add a $50,000 kitchen renovation or a $100,000 addition, the replacement cost of your home increases, but your coverage limit does not adjust automatically. If a total loss occurs during or after the renovation, your policy may pay only the pre-renovation replacement cost, leaving you significantly underinsured. Most insurers require you to notify them of renovations exceeding $5,000 and adjust your coverage limits accordingly.

Construction activities also introduce hazards that can trigger exclusions. If a plumber's soldering torch starts a fire, your policy covers the fire damage (fire is a covered peril regardless of cause), but the contractor's liability insurance should cover their negligence. If construction debris blocks drainage and causes water damage, the insurer may classify it as a maintenance or neglect issue. Open walls, exposed wiring, and absent roof sections during renovation create vulnerability windows where normal weather events cause disproportionate damage, and the insurer may argue that the homeowner should have protected the home during construction.

The Vacancy and Occupancy Problem

Most homeowners policies contain a vacancy clause that restricts coverage when the home is unoccupied for more than 30 to 60 consecutive days. Major renovations frequently require the homeowner to move out temporarily. If you move out during a renovation and the home sits vacant for more than the policy's vacancy period, coverage for vandalism, theft, and water damage may be suspended. Some policies also increase deductibles or reduce coverage percentages for claims that occur during a vacancy period.

To avoid triggering the vacancy clause, discuss your renovation timeline with your insurer before the project begins. Some insurers will add a vacancy permit or endorsement that maintains full coverage during the renovation period. Others may require you to switch to a builders risk policy for the duration of the project. Either way, the conversation with your insurer must happen before you move out, not after a claim occurs.

Builders Risk Insurance

Builders risk insurance (also called "course of construction" insurance) is a specialized policy that covers a building under construction or renovation against fire, wind, theft, vandalism, and other covered perils. It covers the structure, building materials on site, and materials in transit to the site. Builders risk policies are typically written for the duration of the construction project (6 to 12 months) and can be purchased by the homeowner, the general contractor, or both.

For major renovations (gut rehabs, additions, structural changes), builders risk insurance is often necessary because your standard homeowners policy may not adequately cover the project. Premiums for builders risk on residential renovation projects range from 1% to 4% of the total construction cost. A $100,000 renovation would cost $1,000 to $4,000 to insure under a builders risk policy. The policy can be written to cover just the construction portion or the entire property including the existing structure.

What the Contractor's Insurance Should Cover

Your general contractor should carry their own insurance, and verifying this coverage before work begins is essential. Require certificates of insurance for general liability insurance ($1 million to $2 million per occurrence), workers compensation insurance (required by law in most states for employees), commercial auto insurance (for vehicles used on the job), and an umbrella policy for additional liability protection. The contractor's general liability policy covers damage to your property caused by their work and injuries to third parties caused by construction activities.

Request to be named as an "additional insured" on the contractor's general liability policy. This gives you direct rights under their policy if a construction-related claim arises. Without additional insured status, you would need to file a claim against the contractor and wait for their insurer to process it, which can be slow and contentious. With additional insured status, you can file directly with their insurer.

Common Renovation Coverage Scenarios

Minor renovations (under $25,000). A bathroom remodel, kitchen cabinet replacement, or new flooring typically does not require separate insurance. Notify your insurer of the project, confirm that your coverage limits remain adequate, and verify the contractor's insurance. Your existing homeowners policy continues to cover the home during minor work.

Major renovations ($25,000 to $100,000+). Room additions, second-story additions, gut renovations, and whole-house remodels may require a builders risk policy, especially if you will be moving out during construction. Contact your insurer to discuss whether your existing policy covers the renovation or whether supplemental coverage is needed. Adjust your dwelling coverage to reflect the post-renovation replacement cost.

Complete rebuilds. If you are tearing down and rebuilding on the same lot, your homeowners policy will need to be replaced with a builders risk policy for the construction period, then converted back to a homeowners policy when the new home is complete and occupied. The transition between policies must be seamless to avoid any gap in coverage.