7 things you need to know about insurance when renovating
Don't take the risk. Make sure your renovations don't run afoul of your insurance policy.
There are big profits to be made from a renovation project, but it's not always smooth sailing for those trying to manufacture a profit through a property refresh.
The lure of strong capital gains and higher rent is ever-present for renovators, but so too are some pretty big risks. And I’m not just talking about the risks of going beyond your budget or over-capitalising – these are a given.
I’m talking about the common, yet overlooked oversights that many renovators make, such as assuming that their home and contents insurance is adequate enough to cover their property through the renovation period. Often, this just isn’t the case.
The reality of renovating
Whether you’re renovating your own home or an investment property, it’s essential that you understand what is and isn’t covered under the property’s home and contents insurance, to ensure that you are prepared in the event of any on-site mishaps.
In most cases, there are two types of policies needed to adequately cover your project: home and contents insurance and builder’s insurance. If you are the builder or DIY renovator, then you will need to take out builder’s insurance in addition to home and contents insurance.
Here are some of the more surprising facts about insurance when renovating that many renovators may not be aware of.
1. You must tell your insurer that you’re renovating
If you don’t notify your insurer of your renovation plans, your policy may become void, meaning that if something goes wrong during the renovation, you won’t be able to claim. Many insurers require you to inform them of any changes you’re making to your property and some even require you to list any building works as an added extra.
2. Vacancy can void your policy
Living through a renovation can be a nightmare and many of us consider moving out while renovating. However, some policies will become void if your home is vacated for longer than a specific amount of time.
If you’re thinking about moving out while you upgrade your kitchen and bathroom, you may need to think again. Some policies can lapse after just 60 days.
3. If your renovation project is valued at over $50,000, you may not be covered
The majority of home and contents policies will not cover you for any renovation project that is valued at over a set amount, often capped at $50,000. Renovations valued at over $50,000 will categorise your home as a building site and often, your legal liability cover, which protects you if someone gets injured on your property, will also be compromised.
4. Your policy will be affected if the value of your home changes
Once your home renovation project is complete, ideally the value of your property should have risen by a significant sum. You will therefore need to revise your home and contents insurance policy to ensure that it reflects the new value of your home. If your home is underinsured and an incident occurs, it can leave you severely out of pocket.
5. DIY renovators need extra cover
Most policies won’t cover homeowners undertaking their own renovations. If you are undertaking any part of the renovation project yourself, or coordinating as a project manager, then you may need builder’s insurance on top of your home and contents cover. It’s best to check with your insurer to see what they say.
6. Your builder must be insured too
Homeowners aren’t covered against incomplete or defective work if their builder hasn’t insured the project.
Many homeowners aren’t aware that it is compulsory for builders to have their own builder’s insurance if the residential work is over a certain value. This protects the homeowner if the builders don’t complete their work or their work is defective. It's the responsibility of the homeowner to check that their builder’s policy is up to date.
7. No work done? No insurance cover
In most cases, homeowners aren’t covered if work on the project is abandoned for more than 30 days. A builder’s insurance policy may not cover any claims for damage caused by abandonment of the renovation work exceeding 30 consecutive days, which could leave some owners in a sticky situation, particularly if you’ve hired someone who has too many jobs on the go, or if your project takes place during the rainy season.
There are other risks at play too
For instance, did you know that the new owners of a renovated home might be able make a claim against the previous owners if a defect arises? Homeowners selling a home that they recently built or renovated may need owner-builder warranty insurance to protect themselves against potential claims.
All of this sounds a little overwhelming and can make you wonder whether the hassle of renovating is really worth it. But don’t be discouraged. Instead, have a conversation with your insurance provider before you pick up the tools. That way you can remove all doubt about your home and contents insurance and kick off your renovation project with the peace of mind that any mistakes or mishaps will be covered.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author and one of Australia's leading experts in wealth creation through property, and he writes the Property Update blog.