Mark Adams firstname.lastname@example.org
Why you need it but don't have it
We all love a challenge. So why move, when you can renovate? It's the Australian way. And if there was any doubt about that, figures from the Australian Bureau of Statistics verify that renovating accounts for nearly half the total value of construction work across the country each year.
There's a whole lot of money in renovating, and a whole lot subsequently at risk. And yet it seems that the vast majority of people doing extensions and renovations don't get any additional insurance, even though they are risking the value of their project, and... here's the part they are unaware of... generally risking their entire house (which they thought was insured but ultimately wasn't).
According to figures gathered in conjunction with some of the providers of owner builder training courses, it would appear that upwards of 79% of renovators don't take out any insurance.
This may not come as much of a surprise to many of you. We can all appreciate that there is a great deal to consider when extending or renovating and insurance is likely to be placed by many people towards the end of the list.
Most home owners think, “we have a house insurance policy, and renovating is pretty common, therefore our policy probably covers renovating.' Unfortunately, this is a case where our instincts are way off target.
Most home insurance policies will not cover much of anything during the course of a renovation over $50,000 in value (and very little even below that amount). Statistics suggest that well over half the renovations being done each year are above $50,000.
But what if you're one of those who is still thinking, “that's ok, my project's replacement value is easily under $50,000 so everything is okay”. Well, it really all depends on what you consider to be 'okay.' In the examples we will look at in this article we found the cover provided by the home insurance policies to be far from sufficient.
Questions to be asked
In those few cases where your policy will remain in place, you should still question how much the policy will really be covering? And what are the right questions to ask your insurer to get the important answers that you need? We agree with most renovators that this is not at all obvious, until you're told about it. And we can certainly see why it often gets tossed into the 'too hard basket.' But fear not! We've taken some of the sweat and uncertainty out of this issue for you. Let's discuss some of the questions that you should ask.
We even took it a step further and got our hands on the home insurance policy wordings from three of the largest home insurers in Australia.
We carefully worked our way through the information, and finally compiled the summary below. We decided to leave the insurer's names out of this article for the following reasons: a) insurers often have more than one policy wording, and b) policy wordings are regularly revised and/or have supplementary additions issued. We are however suggesting that this information is still a good representation of policies that are available.
Q1: Does the policy cover Public Liability claims that arise out of a renovation?
Insurer A : No, not if renovation value is over $50,000.
Insurer B : No, not if renovation value is over $20,000.
Insurer C : No, never.
There is a significantly higher likelihood of a Public Liability claim occurring during a renovation project compared to at other times. This is why your existing house insurer is often not keen to cover these claims, and why they rely on you to get construction insurance to cover it instead.
Q2: Does the policy cover Public Liability claims for removal or weakening of supports or foundations?
Insurer A : No, never.
Insurer B : No, never.
Insurer C : No, never.
Ok, it seems like the message is loud and clear on this one. Other types of liability claims might be covered by some of the insurers if your project value is under their rather modest limits, but they all agreed that they don't want to touch any liability claims arising out of damage to a neighbour's house caused by vibration or excavation.
To decide if this is a real problem for you, answer the following:
Will you be a) doing any excavating, b) doing any compacting, c) having any trucks or other heavy machinery visit the site, d) constructing a retaining wall.
If you said 'no' to all the above, you might be okay on this point. If in doubt, you need construction insurance.
Q3: Does the policy cover any loss or damage to your home as a direct or indirect result of a renovation?
Insurer A : No.
Insurer B : Yes, but only in some very limited cases.
Insurer C : No.
Two of the policies specifically excluded this. Insurer B did not spell it out, but you'd still have a number of problems. For starters, Insurer B's policy stated that cover ceases entirely for any section of the house that is undergoing renovation. How that is applied in a practical sense? Your guess is as good as ours.
Additionally the policy's Duty of Disclosure would require that you informed your insurer before starting the renovation. Due to this change of circumstances they might (and often will) even withdraw cover altogether.
If the policy continued it would also generally be on the basis that any and all security measures (alarm, key locked windows, deadlocked doors, etc) that were a requirement of the policy originally, continue to remain intact and working. For most projects this becomes tricky.
As the home owner I'd prefer it if Insurer B had just said 'no' like the other two, so that I understood clearly (without the extra digging) that I needed additional insurance.
Q4: Does the policy cover new structures while the project is not yet complete?
Insurer A : Not excluded. May be covered in some cases.
Insurer B : No.
Insurer C : No.
Insurers B and C made it clear that your new structures aren't covered until your project is finished and you then update your policy to include cover for them. Insurer A remained silent on the topic so they may or may not (probably not) respond to a claim.
What's not covered
What you should have taken from the above exercise is that during the course of your extension or renovation project the following things are not likely to be covered by your regular house and contents insurance policy: public liability claims, new structures, building materials, and even your existing house and contents.
Putting that slightly cynical summary aside, there certainly are some major concerns as I'm sure you'd agree. And we've only touched very lightly on some of the bigger problems.
So what's the solution?
Take out appropriate insurance!
Some providers of this insurance use two separate names for this type of cover; "Owner Builder Insurance" - for those constructing a complete new house, or "Renovators Insurance" - for alterations and additions to an existing house. Most providers however do not make this naming distinction, instead catering for both these types of project under the one banner of 'Owner Builder Insurance', with or without covering for existing structures.
The most basic form of owner builder insurance will cover: 1) public liability, 2) any new structures you are erecting, and 3) building materials.
We strongly advise you to take out the above insurance as an absolute minimum. The down side is that it won't provide any additional cover for the existing house, which you're likely to need.
Including cover for existing house
This is the recommended solution. It offers the same cover as above, but is also inclusive of cover for the existing structure.
Some owner builder insurance policies will provide the 'existing structures' option as a partial cover (i.e. damages arising directly from the project), and optionally a more comprehensive cover for losses that do not relate to the works. Depending on how much your existing policy is going to exclude, you may need this extra level of cover.