Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Renovations and home insurance
Knock on your insurers door before knocking down a wall.
When renovations are finally completed, it can be a wonderful relief and all of the effort and disruption certainly seems worth it. However, when your home is in the process of undergoing renovations, it can be nothing short of a massive pain. But the only thing that can make the already-nightmarish experience of renovations even worse is having something go wrong and finding out that your home insurance is inadequate.
Before you begin any kind of renovations — be it the installation of a brand new kitchen or giving your bathroom a much-needed facelift, for example — it is of the utmost importance that you notify the provider through which you have home insurance.
Where renovations are concerned, there are also some key builder’s insurance considerations — regardless of whether you are employing a builder to carry out the renovations or whether you are conducting the renovations yourself as an owner builder.
Let’s have a look at these issues in further detail.
Renovations and home insurance
Assuming that any home insurance policy you have will automatically cover renovations can be a dangerous assumption to make. A great deal of home insurance policies are based on what is termed “regular usage” of the property and, therefore, renovations would fall outside that definition and wouldn’t be covered as part of your home insurance policy. This isn’t typically the case, but it’s incredibly important that you know whether or not your home insurance policy will cover the renovations you plan to undertake at all, let alone whether it will be sufficient to cover the volume of the renovations.
Both of these concerns are part of why it’s imperative that you contact your home insurer prior to undertaking any renovations — to check whether or not renovations are covered and, if so, to determine to what extent they are covered. If your policy does include coverage for renovations, chances are you will need to vary your sum insured to ensure any insurance claims while renovations are taking place will be completely covered by your policy.
While it is true that most home insurance policies will include some aspect of coverage for renovations, the specific details of the work you plan to carry out will affect what you are covered for and how much you are covered for.
Here are some key considerations to discuss with your insurer before you begin the renovation process:
- Find out if your policy definitely covers renovations.
- What is the full value of the work you plan to undertake? Your insurer will need to know this in order to determine if your existing sum insured is adequate or if a new sum insured is required and, if so, what it should be.
- Check to see if theft of building materials is covered by your existing home insurance policy.
- Check to see if there are any security measures you are required by your insurer to put in place while renovations are being undertaken (for example, renovations usually mean properties are less secure, so you’ll need to know how this affects any claims you may need to make for theft or destruction of property).
- Let the insurer know if you plan to carry out the renovation works yourself as this may affect your premium and coverage.
- Let the insurer know if you plan to stay at the premises while the renovations are being carried out or if you will be living elsewhere for the duration of the renovations as, again, this may affect your premium and your coverage.
- Find out what sort of documentation, if any, your insurer will require — for example, permits and inspection reports.
Hiring a builder — insurance considerations
Before you settle on a builder to conduct your renovations, in addition to all the other aspects of due diligence, it’s important to make some enquiries about the types of insurance each potential builder has in place.
Here are the key ones to be aware of:
- Builder’s warranty insurance — this covers the cost of the renovation works should the builder disappear, die or become insolvent. It also covers any non-structural defects for two years post-completion and structural defects for six years post-completion.
- Personal/professional indemnity insurance — this is compulsory for builders who are carrying out work over $5,000.
- Public liability insurance — this covers damage to your home, as well as damage to any neighbouring properties or third parties. It is legally required of builders, demolishers, supervisors and erectors. It is recommended that builders have in place public liability insurance with coverage of at least $5 million.
It is in your best interests to seek proof of these insurances and to check that each policy is current. Bear in mind, though, that regardless of what type of insurance a potential builder has in place, it’s not a guarantee that they are the most proficient at their craft. Make sure that when you are conducting your research into builders that you give the most weight to those who have solid reputations and come highly recommended.
Conducting the renovations yourself — insurance considerations
If you plan to do the hard yards yourself, that doesn’t mean these types of builder-specific insurances aren’t something you should consider.
In particular, it might be worthwhile taking out builder’s warranty insurance. Given the periods for which this type of insurance provides coverage (i.e. non-structural defects for two years post-completion and structural defects for six years post-completion), this could be of most value to you if you sell the property and any of the works you conducted are found to be defective, as you would be held liable for any such defects.
One last piece of advice…
As with any insurance-related issue, it’s important that you are honest with your insurer about your renovation plans. While it may seem harmless to cut some insurance corners to save yourself some money, if something goes wrong, the insurer may void your policy and the money you saved will pale in comparison to the money you’ll have to spend to rectify the situation without the help of an insurer.
And, as always, don’t be afraid to ask your insurer multiple questions and don’t feel bad about seeking clarification for the umpteenth time. Their job is to help ensure you have adequate coverage, and both you and the insurer will ultimately benefit from you having the utmost clarity on what your policy will and won’t cover.