Renovation finance and insurance

Contract works insurance

Your normal home insurance doesn’t cover the specific risks created during a construction project. That makes contract works insurance as essential as timber and nails for your reno. Should there be a major storm that rips through while the roof is off and causes major damage, you’ll obviously want to be covered. The financial repercussions are usually well beyond any rainy day fund you’ve put away.

Doesn’t the builder do it?

The builder should have liability insurance – and be sure to check they do before they start. This covers damage to other people’s property caused by their mistakes on site, but usually excludes the actual property they’re working on.

Say they set your house on fire and it also burns down the neighbour’s garage that houses their vintage Porsche. The neighbour gets reimbursed while all you’ll be left with is smouldering ruins.

As the homeowner, it’s your job to make sure you’re covered.

When do I need it?

If your dreams are merely cosmetic – like a lick of paint or fresh carpet – your regular insurance should be enough. That said, you should always check your policy before breaking out the paint brushes, just in case.

Basically, you’ll always need it for structural renovations. These are the major jobs, things like removing load-bearing walls, add on additions and recladding or re-roofing. Basically, if it’ll cost a fortune to fix, it’ll probably need to be covered.

What you’ll need

It’s probably easier to go through your existing insurance company to cut down on the admin when applying for contract works insurance. There’s some crossover with the details that your bank requires.

It’ll ask for:

• Your builder’s details.
• Engineer and architect’s details (if they’re involved).
• Your home’s existing insurance policy – dig up the policy number before calling.
• Whether you’ll be living on site or somewhere else during the job.
• The cost of the renovation. It’ll also calculate potential variations and demolition fees if something should go wrong, but that’s usually based on a percentage of the total contract price. If you have a difficult site that’ll make these sorts of things more expensive, you might want to up the values.
• The particulars of what’s happening on the job. Are the exterior walls or roof coming off?
• Have the required consents been obtained?

What doesn’t it cover?

As is the norm with insurance policies, there’re exclusions from cover you need to know about.

If your builder has done a dodgy job and hasn’t built to code, it won’t be covered. Same goes for usual wear and tear failures of materials. The usual wording tends to include “sudden accidental loss” – that’s the big stuff like fires, floods or storm damage and vandalism and theft.

Review your insurance after renovating

All going well, your place should be worth a pretty penny after you’ve finished tarting it up. If you done some bespoke work to the place, you’ll know full well just how expensive it was to build in the first place. That also means it’ll probably cost more to rebuild should something catastrophic happen.

Your old sum that you were insured for will be out of date. Don’t forget to redo the calculations and up your regular home insurance after your reno has finished so you aren’t left short, and the potential rebuild will be fully covered.

If you’ve splurged on a new lounge suite or flash piece or art to finish the look, the value of your contents would’ve risen as well. Check you’ve got enough there to re-buy everything should something happen.