Spring is one of the busiest times of year for renovation projects, and homeowners will be putting up thousands of dollars to remodel their homes or home systems. Although renovations are often a huge investment, major safety improvements to a home could save policyholders up to 60% on their home insurance premiums, which comes out to over $1,500 in savings for a sample State Farm policy. Some of the biggest post-renovation savings come from updating utilities, matching building code standards and installing wind-mitigation features.
Example: Maximum Discounts for Home Renovation with State Farm in Florida...
How Insurance Companies Discount for Renovations
Like most major insurance companies, State Farm advertises a variety of discounts for homeowners who make their homes safer. Lower-risk customers are less likely to make a claim—or to make expensive claims—and are rewarded with lower premiums. But calculation methods for these discounts are often opaque, and insurance quotes don't clarify if savings are coming from one discount or another.
Based on rate filings for State Farm in Florida, we've identified ways in which discounts may affect home insurance premiums for three types of renovations: utilities and home systems, building code standards, and wind-mitigation features. The filings show that discounts can be highly variable, but savings can add up to hundreds or even thousands of dollars per year.
However, homeowners should be aware that different insurers reward home safety in different ways, and individual insurer practices may change across state lines. Homeowners should always check with their insurance company to determine what they need to do to get a renovation discount.
Discounts for Renovating Utilities and Home Systems
Older plumbing, electrical systems, and heating and cooling systems can pose a risk to your home, resulting in a more expensive insurance policy. Like many other insurance companies, State Farm provides discounts for homeowners with newer homes, reflecting the lower risk associated with modern construction.
However, a brand-new house isn't necessary to update your home systems, and homeowners can often get a discount just for updating those core systems. For instance, when homeowners update utility systems that are older than 16 years, their premium decreases from $2,615 to $1,883—a savings of 28%. However, even updating home systems that are only 10 years old could save homeowners up to 20%.
|Age of home systems||Premium before systems renovation||Premium after systems renovation||Percentage savings from updating the systems|
This is just one example of how savings from a utility renovation may work. State Farm calculates home insurance premiums in Florida as a sum of a hurricane premium and a nonhurricane premium to account for the unique risks posed by this type of storm. Utility renovation discounts only apply to the nonhurricane premium. That means if a homeowner's nonhurricane premium is a large share of their total premium—more likely in locations less prone to hurricanes—the discount may be even larger.
Discounts for Renovations That Add Wind-Mitigation Features
The most common type of home insurance claim is for wind and hail damage. Consequently, insurers reward homeowners who install features that make their homes less vulnerable to this sort of peril, especially those located in states particularly vulnerable to it.
State Farm is no exception: Customers in Florida can expect some of the biggest savings available through this discount, with annual premiums decreasing anywhere from 28% to 38% on our sample base premium. Savings may be even larger for homes in areas vulnerable to hurricanes, as the discounts are largely applied to the hurricane portion of the home insurance premium. Some of the homes with the most expensive hurricane premiums, and thus biggest wind-mitigation discounts, were those located in Miami-Dade, Broward, Monroe and Palm Beach counties, given their proximity to the Atlantic coast.
|Wind-mitigation discount||Premium (Discount versus home without wind mitigation)|
|Common discount||$1,888 (28%)|
|Maximum discount||$1,632 (38%)|
How Do Renovators Qualify for a Wind-Mitigation Discount?
Qualifying for a wind-mitigation discount will require a home to meet certain standards for protection against wind and hail damage, with exact details depending on the insurer and location. If someone is renovating their home, they should first pay for a wind-mitigation inspection to determine which elements of the house do and don't qualify for wind-mitigation discounts based on local standards.
To use State Farm Florida as an example, homeowners have two paths to getting a wind-mitigation discount. They either need to hire an inspector to complete a Uniform Mitigation Verification Inspection Form (UMVIF), or they can automatically qualify based on where and when their home was built.
If Florida homeowners don't automatically qualify, an inspector will analyze many features of your home to ensure it has all appropriate wind mitigation features, including:
- Compliance with local building codes
- Appropriate roof covering material
- Strength of roof deck attachment
- Strength of roof-to-wall attachment
- Roof geometry or shape (hip roof, flat roof or other)
- Secondary water resistance (an extra barrier protecting your home in case of damage to your roof)
- Strong protection for windowed and nonwindowed openings
Discounts for Renovating to Meet Modern Building Codes
Homeowners who renovate their homes to their community's latest building code standards (or to even higher standards) may see savings of 8% per year on their home insurance premiums.
Insurers reward homeowners whose buildings meet established minimum code standards. If someone obtains a home insurance policy with State Farm in Florida, adjustments to their premium are based on the Building Code Effectiveness Grading Schedule (BCEGS) of their community, which is graded by the Insurance Services Office. Communities with the highest BCEGS rating can receive discounts up to 8% off their annual premium compared to those with the lowest ratings.
|Building Code Effectiveness class||Premium (Discount versus lowest class of 10)|
|1 to 3 (best)||$2,406 (8%)|
|4 to 7||$2,485 (5%)|
|8 to 9||$2,563 (2%)|
|10 (worst)||$2,615 (no discount)|
Homes built up to government building code standards are often less susceptible to damage, and when damage does occur, the safer buildings often mitigate the ultimate cost of the damage. For example, building codes might require a certain type of roof material to be in accordance with established minimum standards.
How Do Home Renovators Qualify for a Building Code Discount?
There are three scenarios in which renovations could qualify for a building code discount with State Farm.
- If a home is built after its community has been assigned a Building Code Effectiveness class, it will automatically qualify for the assigned discount.
- If a home was built before the community had established its current standards, the owner will have to renovate their home to meet standards and obtain the discount.
- If a home is renovated to exceed its community building code standards, it may be eligible for an individual rating and increased discount, which homeowners should discuss with their insurer.
Methodology: How We Calculated the Discounts
For a given homeowner in Florida, State Farm calculates base hurricane and nonhurricane premiums, and then alters each premium by discount factors. The two premiums are then combined to give a final homeowners insurance premium. Ignoring location factors that affect premiums based on where the home is, we calculated discounts based on a standard $2,615 premium for a State Farm home insurance policy with $150,000 in dwelling coverage and standard personal property and liability coverages. When multiple discounts are applied, they are based on the lower premium calculated with previous discounts, so successive discounts have a smaller absolute effect on the premium than if they were applied individually.