If you’re planning a major renovation, be sure to consider what it might do to your home insurance premium. Of course, not all home renovations will affect your policy, but many of them will and it is important to disclose such information to your insurer to avoid complication. For large upgrades that add to the aesthetics of a property, the owner’s home insurance premium rate will likely rise as there is more in need of coverage — think kitchen makeovers and finished basements. On the other hand, whenever a renovation increases the safety or efficiency of a home, rates may lower. It’s not as black and white as this, and many are afraid to disclose the details of a renovation in fear that they will invalidate their policy. If anything, by not sharing this information with your insurer, coverage during the construction period may not be sufficient and the upgrades will remain unprotected against disaster.
A recent TD Insurance Poll revealed that 6% of the 2,748 adults surveyed checked their policy before renovating, and only 16% contacted their insurer directly. In addition, the study outlined that there are three common mistakes most Canadian home owners make when purchasing a property: (1) they purchase homes in need of significant repair; (2) they make a small down payment; and/or (3) they skip the home inspection. The issues of down payment and inspection are common with first-time buyers; however, the need for renovation is not always a negative, especially for investors. Flipping a property, for instance, requires much work to be done in a house, meaning that the insurance policy must indicate as much. For every redo, take down, take-out, and bring-in, it is important to have documentation for the insurer to review.
By disclosing this information, you ensure that you have the necessary protection during a major renovation. Since the likelihood of damage rises during the construction process, many property owners are not as protected as they may think. The property owner faces many liabilities, including the well-being of the contractors in the home. Be sure to see each worker’s insurance policy and updated worker’s compensation clearance certification in case of an on-site accident. Even if you are the one doing the renovations, there are still policies worth considering:
- Builder’s Risk Insurance Policy — There are some things that this policy does not cover, but fire damage, lightning, hail and wind weathering, smoke, as well as vandalism are all included. Note: this is not the same as liability insurance; that must be purchased separately.
- Vacant Permit — If the property is vacant for more than 30 days, which is common for investors who don’t live in the home being renovated, it is important to obtain a permit, otherwise you will be at risk of losing coverage and facing financial consequences.
The two policies mentioned above are particularly important to those trying to make a profit by upgrading and selling a home. For the regular home owner, such extensive coverage may not be necessary — but this does mean that you should not inquire. Even if it costs you a bit extra on your home insurance premium, it is best to have not left your insurer in the dark. In selling a home, you may even get into trouble if there are upgrades discovered that were never accounted for. So, save yourself the trouble and disclose all necessary information and proceed protected. It’s better to have expected the unexpected than to be caught off guard and penalized for having violated the existing policy.