Do I need home insurance for renovations?

Most home insurance policies are intended to cover standard risks to a property. A renovation project can introduce a plethora of new risks, from damage to the property, theft or damage of the home’s contents, or personal injury of the home’s inhabitants or tradespeople. 

Because of the extra risks involved with renovating, some insurers may exclude renovation projects from their regular home insurance cover. Others may still offer the cover, but only up to a predefined limit for the renovation project’s budget, such as $50,000 or $100,000.

If renovations aren’t covered under your current home insurance policy, you may be able to take out additional cover by paying an extra premium. If your insurance company doesn’t provide the cover, you may wish to consider cover from another insurer.

Building sites can also be attractive targets for thieves, so you may want to confirm that your insurance covers the risk of theft during your home renovation, for your own peace of mind.

Firstly, speak to the insurance company before starting the renovation as policies may become void if you fail to do so. This means that if anything goes wrong during the renovation, the damages will not be covered by your home insurance policy.

Under a comprehensive home insurance policy, damage caused by a contractor should be covered, though you should always check with the insurer to be certain. 

If you’ve hired builders or other tradespeople to take care of your renovation project, these workers should be covered by their own insurance policy, sometimes called builder’s insurance or tradie’s insurance. The builder’s insurance covers financial expenses resulting from any damage caused to your home while renovating.

Damage to your home will generally be covered by the builder’s insurance; however, it may be limited to only those areas that are being renovated. Some insurers extend builder’s insurance for the entire home, which can be a replacement for home and contents insurance while renovating. To extend the builder’s insurance cover, you may have to pay additional fees.

Before hiring builders for a renovation project, it may be worth asking about their insurance, including what’s covered and what’s excluded.

Keep in mind that if the builder isn’t able to complete the renovation work on your home, such as if they’ve gone missing, died, become insolvent or lost their licence, you may be covered under your state or territory’s home warranty insurance - check with your state or territory government to learn more. 

Minor renovation projects may be covered under your standard home insurance policy.

Small modifications like fixing a bathroom or changing the partition wall do not significantly alter your home's structure, so these works are sometimes covered under a standard home insurance policy.

It’s important to check whether renovations compromise your home’s safety, as this can sometimes determine whether coverage is provided.

Insurance for homes under renovation can be more complex if you’re looking at larger projects.

Insurers may be wary of providing home insurance during a major renovation, because your home may be often unoccupied for longer periods. If you move out of home during the renovation work and the home remains vacant for more than a pre-specified time (e.g. 60 days), the policy’s benefits may lapse.

If you plan to do the renovation work yourself as an owner-builder, your home and contents insurance may not be adequate. You may need builder's insurance in addition to the standard policy. If you hire extra contractors and subcontractors, you may want to make sure they have builder's insurance too. 

Completing a renovation project (especially a major project, such as adding extra rooms or storeys) can often affect the value of a property. As the property’s value may increase significantly, you may need to lift the sum insured for the home and contents insurance policy to ensure you get an appropriate payout if something goes wrong. 

At the same time, you could organise your own valuation of the property to give you a better idea of how much equity you now hold in the renovated property. This could open more financial decisions up to you, such as refinancing your home loan or applying for a home equity loan.

It is the Australian standard that you should hear back from an insurer within 10 working days from making an insurance claim. They may accept your claim, reject it, or ask for more information to make a thorough assessment. Once the insurer has all the information they need, a final decision should be available in 10 business days. 

If your insurer is taking a long time to assess and pay out your claim, or if your policy has a high excess, you may need to pay for part of the repair work yourself, using the same source of finance as your renovation budget. This could be from refinancing and extending your home loan, or taking out a home equity loan to borrow as you need it. Some home renovations are funded using a personal loan or even a credit card.

Be sure to keep careful records of whatever you spend on your renovation and fixing any damage that occurs during the project, as the insurer will likely want to know the details before they’ll cover it.