Home Renovation Insurance

When you renovate your home, or plan to build a new one, it is crucial that you speak to your insurance broker. Home insurance policies are not intended to cover your residence while it is being renovated or built. If you are renovating or building without your insurer’s knowledge your residence may not be covered and in the event of an incident, such as a fire, your insurer may decline the claim. This is simply because the insurer has agreed to insure a residence but not a construction project.

To properly cover you, your insurer will need to either adjust your existing policy or you may require an entirely new policy to insure the risk while under construction. Homes under construction pose a significantly higher risk of loss due to the materials and activities inherent in construction, and certain perils such as fire, theft of building materials, vandalism, and water losses occur much more frequently in homes that are being worked on.

While home builders and General Contractors will carry their own insurance, it is rare that they will cover physical damage to the home itself unless it is specifically indicated in the building contract. If you do not have coverage on the home during construction, you might be forced to try to obtain compensation for damages through the legal system and this is invariably a lengthy, costly, and incomplete route to obtain restitution from your builder.

Coverage options

Existing homeowner policy

For smaller renovation projects, your existing homeowner policy may be sufficient once the renovation specific endorsements are added. It is very important that your insurer be notified PRIOR to the start of construction work or they may not agree to cover the project so it is highly recommended to speak to your broker during the planning stage. This will also allow your broker to make helpful risk reduction recommendations to help ensure a successful project.
Residential Course of Construction Policy

For most new builds and teardown projects, you will likely require a separate standalone insurance policy covering the build. While some insurers will accommodate this kind of project, generally you will need to arrange coverage with an insurer who offers specialized underwriting and policies to properly cover your project. Home construction insurance policies, which are also known as Residential Builder’s Risk Insurance, will typically be written for the length of the project, and you may also require additional coverages such as project specific liability. Coverage must be arranged prior to the start of work to obtain best pricing. Some insurers will consider underwriting coverage for projects already under way, but premiums will be calculated at a much higher rate and may even be unavailable.

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What is Residential Course of Construction Insurance?

Residential course of construction insurance will include coverages not always provided under endorsements added to existing home insurance policies, such as covering the value of temporary structures like scaffolding or storage sheds used to hold materials and equipment. You may also wish to expand your liability coverages to ensure that you are not left responsible for actions of the workers where they fail to adequately insure themselves. Some common questions are:

Will your insurer cover increased values and costs imposed by change orders?

How will the insurer handle a project that goes over budget or where the construction period is extended beyond the original completion time frame?
What loss mitigation steps might be taken to reduce the risk and potentially reduce premiums?

Perhaps most importantly, you need to review and understand the coverage conditions available under the home construction insurance policy.

Will the policy cover only specifically named perils?
Or will the policy provide expanded coverage definitions?

Is theft of materials covered?
How are water losses addressed?

Your broker can help you understand what you will be covered for.

How much will home construction and renovation insurance cost?

The cost of a builder risks or home construction insurance policy varies greatly depending on the estimated building cost of your home, the size of the project, the finishes and the materials to be used. The location of the project is also a major consideration and the experience and reputation of the builder is another key factor.

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What information will I need to obtain an accurate home construction and renovation insurance quotation?

Typically, your broker will require the following information, though additional details may be required for larger projects:

Project price and length of contract
Name and experience of the General Contractor
Detailed scope of the work to be done
Details of any site security (fencing, lighting, signage, guards, cameras, etc.)
Will the contractor be utilizing sub-trades and will the General Contractor supervise their activities and confirm they carry underlying insurance?

Confirmation of insurance carried by the General Contractor
Where will you be residing during construction?
Where will your household contents be stored while work is ongoing?
Do you have existing liability insurance that will cover your personal liability for the project? Or will you require project specific liability protection?

FAQ

I Want to Be My Own General Contractor, Why Is It Harder and More Expensive to Obtain Coverage?

Experienced and trained General Contractors can be worth their weight in gold. However, sometimes we wish to save on construction costs or wish to maintain a higher degree of control over the project. When there is no General Contractor, the risk of loss and the likelihood of critical steps being missed in the finished product increases significantly. Insurers are never anxious to take on projects where the risk of loss is unnecessarily increased. Some insurers will write projects where you are acting as your own General Contractor, but they will need to see evidence that you have relevant knowledge and experience and that you will be taking additional steps to ensure building codes and proper procedures are followed. For larger projects, insurers will be extremely reluctant to allow you to act as your own General Contractor.

What Are Some Recommendations I Should Consider for The Project to Avoid Future Surprises?

There are a number of items you should consider implementing during the construction process that will help you once the project is completed, some of the more common ones are:

Generally, homes exceeding a rebuilding value of $1 million will require monitored alarms once completed to be insured at reasonable rates. Alarm system specifications and requirements will vary between insurers, you should discuss these requirements during the project with your broker. Local building codes are usually not as stringent on components as insurers may be, and you could save considerable cost by ensuring your system is installed satisfactorily. The larger the home, the more specific the alarm system requirements will be. Additionally, if installed during the build phase, it is much easier to run the wiring and ensure the units are installed in a more aesthetically acceptable fashion.

Water losses continue to be the leading claims problem for clients and insurers. Many insurers are now recommending or even requiring that loss mitigation device be installed in new homes. It is easier and less expensive to install an automatic flow-based water supply shutoff device during construction than to go back and retrofit it once the project is completed.
In larger homes, a sprinkler system can generally be installed for a relatively minor cost during construction and these systems can generate significant premium reductions that will offset the installation cost over time.
Permanently installed automatic generators and video systems can also provide premium reductions after project completion, your broker can provide information on how your future premiums might be reduced
Reverse slope driveways are problematic when seeking complete water coverages for a finished home. If your home will have a reverse slope driveway, installing specific drainage capabilities could help to ensure you can obtain proper water coverage once completed.

Why Is My Construction Insurance Set at The Full Completed Cost? I Haven’t Finished Excavating Yet!

With construction risks, the risk increases exponentially as the project progresses, with the highest risk of loss being immediately prior to completion. The insurer will price your policy based on this understanding and by spreading the cost over the entire project this keeps costs at the tail-end down significantly. Additionally, this reduces overall costs as the underwriter does not need to make regular adjustments to your policy, ensuring that adequate coverage is always in force.

I’ve Finished My Project, and Now the Appraiser from My Homeowner Insurer Has Established a Rebuilding Cost that Is Higher What I Just Paid for The Home, how Is This Possible?

Contract prices are established at the start of construction, and for longer projects the effects of construction cost inflation will impact the insured value at the end of construction. Construction activity in Canada has been operating at a feverish pace over the past decade, and continues to outpace regular inflation by a significant margin. It is not uncommon for the rebuilding cost on a three year project to increase by over 15% by the time it is completed. Additionally, when an insurer calculates the required amount of insurance required, they are influenced by their particular contractual obligations in the event of a claim. They are often in a position of having to pay higher prices to ensure a more timely completion of a claim and do not have the option of shopping around for lower pricing.

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