7 big insurance risks when renovating
There are big profits to be made when renovating.
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 rents for renovators is ever-present, but so too are some big risks.
However, I’m not talking about the risks of going beyond your budget or over-capitalising; these are a given.
I’m talking about the other common yet overlooked oversights that renovators make — such as assuming that their home and contents cover is adequate to cover their property through the renovation period.
Often, this just isn’t the case.
The insurance reality of renovating
When you’re renovating, whether it’s your own home or an investment, it’s essential that you understand what is and isn’t covered under the property’s home and contents cover, to ensure you are prepared in the event of any on-site mishaps.
In most cases there are two types of policies needed to adequately cover any risks in your renovation: home and contents cover, and cover taken out by the builder.
If you are the builder as DIY renovator, then you will need to take out builders’ cover in addition to home and contents cover.
Here are some of the more surprising financial risks that renovators may face, often without even realising the possibility for a big financial setback:
1. You must tell your insurer that you’re renovating
If you don’t notify your insurer of your renovation, some policies may be void — meaning if something goes wrong during the renovation, you can not make a claim.
This is because many policies require you to inform them of any changes you’re making; some insurers 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 think about moving out while renovating.
However, some policies will lapse if a home is vacated for longer than a specific period.
If you’re thinking of moving out while you upgrade your kitchen and bathroom, then you may need to think again, as some policies can lapse if homeowners vacate the home for more than 60 days.
4. Claims over $50,000 are not usually covered
The majority of home and contents policies do not cover homeowners for claims that occur during renovations over a set amount, often capped at $50,000.
Renovations over $50,000 will categorise homes as building sites.
Over this value, homeowners’ legal liability cover — which protects them against claims for injuries on the property — could also be compromised.
4. The policy is affected if the value of the home changes
Once the home renovation is complete, ideally you will have bumped up its value by a significant sum.
You will therefore need to revise your home and contents cover to ensure it reflects the new value of the home, as under-insurance can leave you severely out of pocket.
5. DIY renovators need extra cover
Most policies won’t cover homeowners undertaking renovations.
If you are undertaking any part of the renovation yourself, or co-ordinating as a project manager, then you may need builders’ insurance on top of their home and contents cover. Best to check with your insurer to see what their specific policy is.
6. Your builder must be insured, too
Homeowners aren’t covered against incomplete or defective work if their builder hasn’t insured the project.
Not many homeowners know that it’s compulsory for builders to have their own builders insurance if the residential work is over a certain value.
This protects the homeowner if the builders don’t complete their work or the renovations they have done are defective; therefore homeowners must check 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 after 30 days.
A builder’s insurance policy might not accept claims for any damage arising out of 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 during the rainy season.
There are other risks at play, too
For instance, did you know that new owners of a renovated home might be able make a claim against the previous owner, 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.
This way you can remove all doubt about your building and contents insurance, and kick off your renovation with the peace of mind that any mistakes or mishaps will be covered.