Insurance Implications And Risk Management For Home Renovations

Renovating isn’t just expensive, it’s also full of red tape including insurances, government regulations, council regulations and builder’s codes. If you don’t know what you’re doing and therefore don’t take care of all of your compliance issues you could be in for a costly and painful surprise in the form of fines, project delays and cost blow-outs.

Insurance can get tricky.

If you’re doing a large scale upgrade or adding an extension to your home, you may be required to change the status of your home to “under construction.” Similarly, if you move out of your home for more than 30 days during renovations you could lose your coverage entirely.

And that’s no joke as there are terrific fines if things go wrong for not being covered, and penalties can even include jail time if somebody gets injured badly enough.

The difference is in the costings, and how much you’re getting billed at the end. Anything over $5000 in capital works needs a building permit. It’s at this point you move from “improvement” to “renovation”, bringing in a whole new world of regulations.

Doesn’t matter.. my builder has his own insurance?

Maybe he does, maybe he doesn’t. Have you seen it for yourself? Ask to see the policy before letting work begin on your property. It’s a dangerous game to presume that your Home & Contents insurance covers contractors and their employees with regard to home improvement. Often they’re not covered at all, making you liable in a big way.

Best is to get Owner Builders insurance in addition to making sure your contractors are self insured. Cover as many bases as possible, as while you may pay a little more and be “over-insured”, that’s a lot better than the potential costs and litigation of being under insured!

For example if you are an owner builder and renovation cost for parts excluding labour comes to 30k and you need to claim on insurance the insurer will value the job as if the job was quoted by a Building Contractor plus wages and margins. So a simple kitchen renovation which you priced at $30,000 will be deemed as $60,000 +. Now you have no insurance on either your home or the construction!


Renovations can affect your regular insurance too.

While many home renovations such as installing a security system or deadbolt locks can lower your premiums, other upgrades, such as granite countertops or a large expansion can actually raise your rates.

The key to sidestepping that little pitfall is to have a chat with your insurance agent before hammering in the first nail. Go through the renovations you’re planning to make and find out ahead of time if there will be any specific insurance related implications.

In the end you may well be happy to pay the extra premiums, but it’s still better to know beforehand so that you get to make the call, rather than the call making you. :)

The golden rule for following building codes:

When it comes to builder’s codes there is one rule that you follow…

“If you aren’t sure whether what you plan to do will break planning regulations or not, then don’t do it”

Breaking planning regulations is not one of those situations where it’s best to “ask forgiveness rather than permission.” If you get caught breaking planning codes you’ll get fined.

Depending on the law you break, the fines can be huge.

And, if they get really narky you may even be forced to pull the structure down as well, and that’ll hurt the most. I’ve read about an owner builder who cut down a gum tree without permission to build a backyard granny flat and got hammered by his local council.

The poor guy (depending on your point of view) not only had to pay more than $100K in fines, he also had to replant the gum tree in his backyard and tend to it for the next 5 years. So he ended up $100K out of pocket with nothing but a small tree in his backyard to show for it. lol

I thought the fact that they made him take care of the tree for 5 years on top of the fine to be the product of a particularly vengeful and vindictive official. Funny though, and I bet he doesn’t do it again, which was probably the point!

If you aren’t sure whether or not you need a building permit for a particular project, ask before you do anything else. The same goes for complying with inspections. If you aren’t sure if you need to call out the council inspector, it’s best to ask first. A phone call is a lot cheaper than paying a massive fine.

Don’t forget the codes, as painful as they are, were put there to create a level playing field for builders and to keep everybody safe from harm. Overall they’re a good thing.

It’s gonna go wrong. Count on it.

As an aside I have never worked on a project that went 100% to plan. Never. That doesn’t mean that the project came in late, just that there is always some random event that causes you to scramble no matter how well you’ve prepared and planned. Planning for those sorts of contingencies is vital.

That said, there are a couple of common mistakes I see all the time that increase your chances of costly blowouts.

Low grade materials:

Saving a buck or two on cheaper materials generally costs you more in the long run. While a cracked tile or two might be something you can live with, major re-do’s can end up costing you thousands of dollars.

Poor subcontractor scheduling:

General Contractors are skilled at scheduling their subs in a fashion to minimise labor costs.

DIY renovators often make the mistake of scheduling a subcontractor too soon. A project will quickly go over budget if you are paying tradesmen to stand around because you called them in before you were ready for them. This is especially important for plumbers and electricians. Those guys cost a fortune, so get them in at the right time.

Not planning for delays:

When paying workers by the hour, calculate an extra 20% in labor to cover delays for whatever reason. For home renovations it’s never a question of whether or not delays will occur, as they are almost guaranteed. Instead try to figure out how long those delays might be and factor them into your costings.

Hope for the best, but plan for the worst!:

The probability of unforeseen problems arising during your project is exactly 100%. Budget your time, patience, and money accordingly.

And that’s all she wrote!

This has gone on a bit longer than expected, so I’ll finish up by saying plenty of owner builders get in there and do a great renovation on their homes while being totally covered legally for anything that goes wrong.

The difference between those guys and the ones who get it incredibly wrong is a little planning and risk management before the project starts.

Benjamin Franklin put it best. “If you fail to plan, then you’re planning to fail”. Nailed it.