There are 2 groups of people that might be concerned about this: building owners & renters.
- For building owners, tenant’s improvements and betterments that change the value of the tenant’s unit have no effect on your limits of insurance. This is because tenant’s improvements and betterments are, by definition, paid for by your tenant and so, you have no insurable interest in them. However, depending on the type of changes, there might be an increase in the risk of loss to your building. If your building has a restaurant who made some “improvements” to install a large wood-fired oven on the premises, the underwriter is likely to view that as a higher risk than, say, adding office space. In that sense, your risk factors have gone up and so your premiums might go up along with them.
- For tenants, since you are the one paying for these improvements, you will have an insurable interest in them. This means that, if these changes significantly increase the insured values, you will need to update your limits of insurance; otherwise, you run the risk of being under-insured. Some improvements also bring with them a higher potential for loss. This added risk means you will likely need to pay a higher premium.
The rationale behind all of this is pretty simple: anything that increases the amount of money the insurer pays out or increases the likelihood of you filing a claim needs to be reported to the insurer.
This article was originally written for Insuranceopedia.