9 things you need to know about insurance when renovating
Don't wait until after your home is finished to tell your insurance provider about your renovation, unless you want a nasty surprise.
Renovations are exciting, but taking on a big home project isn’t always smooth sailing. Worst case scenario, your home renovation will void your home insurance policy — forcing you to pay tens of thousands out-of-pocket.
Here are nine things to know in order to avoid nasty surprises when it comes to home insurance and renovating your home.
1. Call your insurance provider before you renovate
While it’s important to determine the correct budget for your planned renovation and to find the right tradespeople to tackle the job, it’s also important to understand the legal implications of tackling a home renovation.
“It’s important to make your insurer aware of any major changes to the home as these updates typically alter the property’s value,” explains Romana King, Group Editor at Finder and author of House Poor No More: 9 Steps that Grow the Value of Home and Net Worth. “A failure to notify an insurance provider of planned renovations allows them to deny any claims made during the period of construction — and this can be catastrophic to your finances.”
To avoid a nasty surprise, call your home insurance provider and talk to a representative. Explain the renovation plans and ask what coverage — or amendments to current coverage — are required, and how much it will cost. In some situations, you may need to add extra coverage, such as builder’s risk insurance. This will be an added cost, but your home will still be covered should a catastrophic event occur, such as a fire or significant water damage.
2. Vacancy can void your policy
Living through a renovation can be a nightmare, which is why it’s common to move out while renovating. However, some policies will become void if your home is unoccupied for longer than a specific amount of time, typically between a week to 90 days.
“Most homeowner policies state how long you can leave your property vacant before your policy automatically becomes void,” explains King. “Find out how long that period of time lasts, and make arrangements for a friend, family member or neighbour to regularly check up on your house while renovations are underway. This way, you can avoid accidentally voiding your home insurance while work is being done to improve your property.”
Another option is to talk to your insurance provider about adding a vacancy permit to your home’s insurance coverage. While not all insurer’s offer this coverage, it’s good to discuss the anticipated situation to find out what you can do — and pay for — to keep your home protected through homeowner’s coverage.
3. No permits? No insurance coverage
If you don’t have all of the necessary permits for the planned renovations, you could void your home insurance policy — prompting your insurer to refuse to pay out any claims. Be sure to apply and obtain all necessary permits, before you start renovation work.
4. DIY renovators may need extra coverage
Some 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. To be sure, call your insurance provider.
5. Your contractor must be insured, too
Homeowners generally aren’t covered against incomplete or defective work if their contractor isn’t insured. If you’re hiring an outside contractor, check that they’re licensed and insured for both liability and workers compensation. It’s a good idea to check the credentials of any subcontractors, too — don’t assume that your contractor will have handled that.
6. You may need extra liability insurance
Liability coverage, through your home insurance, protects you should a person injure or suffer a loss while on your property. In most cases, homeowner insurance offers $1 million to $2 million in liability insurance — coverage that can quickly be eaten up by court fees and medical coverage (for the injured party). To find out how much coverage you have, read your insurance documentation. Plus, consider adding more coverage while renovations are underway as a precautionary measure. Remember, there will be more people on your property and the tasks being accomplished carry risks — to protect your financial well-being, it’s worth it to pay a few extra dollars for higher liability coverage.
7. Your building materials may not be covered
Should your home suffer damage due to a covered event, you’ll need to consider whether or not newly purchased building material — which can quickly creep up in cost — is covered. To be sure, talk to your insurance provider. Ask for precise information on what is covered and what is excluded. If building materials are not included, consider ways to mitigate this loss. One option is to budget 10% of your home renovation budget and set that aside as an emergency fund in a high-interest savings account. This gives you a buffer for unexpected costs and lets you avoid taking on expensive debt, such as unpaid credit card balances. Another option is to apply for a low-interest credit card. By carrying a balance on a lower-interest credit card, you pay less in interest charges and that means more of your money can be used to pay off unexpected debt.
8. Take pictures of everything
Take before and after pictures of everything, including your belongings and the home itself. Check in with your insurance agent again when the project is finished and make sure they know about any major changes to the home to avoid denied claims in the future. For example, if someone slips on the porch stairs that didn’t exist before the renovation, you could end up with a denied claim.
9. Call your insurance provider after you renovate
Your home’s replacement value will go up once the renovation is complete. As a result, the original home insurance contract you signed may now be insufficient to cover the cost of repairing or replacing your home should you need to file a claim. To rectify this you need to call your insurance provider and provide details on the recent renovation. This includes letting them know you the renovation and your coverage limits may not be high enough if your home is damaged or destroyed. Talk to your insurance agent about your renovation plans before getting started to find out how and when to update your coverage.
A new renovation is an exciting thing, and it can help increase the value of your home. But before you hire any contractors or start construction, you’ll need to talk with your insurance agent about your plans to make sure you retain your coverage and modify it if you need to.
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About the Author
Jaclyn Hurst is an associate publisher at Finder. She has a Bachelor’s degree in Business from Redeemer University and a University Certificate in Management Foundations from Athabasca University. She’s as passionate about business and finance as she is about the great Canadian outdoors, organic Sumatra coffee and music.