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Finished Basements And What Should Be Reported To An Insurance Company

2010-09-05

Finishing a basement is comparable to adding a completely new level to the home. If the basement is the same square footage as the main floor, then the home's finished square footage has doubled. It is important to report the finished basement to your insurance agent so the home insurance policy can be updated. Yes, it will raise the premium. but the increase will not be substantial and will be well worth it if a disaster occurs. If the policy covers replacement cost it is important that the new finished area be included in that coverage.

Before beginning any home improvement, check to see if permits are required. It is questionable that a major improvement, such as finishing the basement, will be covered if don't have the required permits. One area of concern with basement improvements is adding what are referred to as "non-conforming" bedrooms. This usually means that the window in the bedroom is too small to exit through in case of an emergency such as a fire. This is a problem area with many insurance companies. It is better to either make the room conform or not use the room for a non-conforming purpose. Check with the insurance company to be clear on what improvements the policy will be cover.

Unfinished areas of the home such as the garage, basement and attic are not covered at the same rate as the finished areas of the home. That is why it is essential that any improvement or addition be added to the home insurance policy. If damage occurs to the finished basement and the change has not been reported the claim will be paid as if the basement was unfinished. This can result in a substantial loss to the homeowner. If the basement has had carpeting, sheetrock, insulation and wiring added and it is damaged in a fire, the homeowner will not be covered for these improvements. The damage will have to be fixed at the homeowner's expense. Many people will not be able to afford paying a second time to have the basement finished.

At the same time the policy is being upgraded, it is a good idea to check with the agent about flood damage. Many home insurance policies will cover the damage caused by a broken pipe but not the damage caused by other kinds of flooding. A basement, being below the grade, is the first place water will go if the sewer backs up. There is additional coverage that can be added to the policy to cover these disasters. When so much time and money has been spent in making such a significant home improvement it is wise to protect it.