Renovation Insurance Explained
Builder’s Risk Insurance, Liability, Warranties and Other Protections for Homeowners
In this weekly Q&A column, retired builder/building inspector Cam Allen answers readers’ home renovation questions. Have a question? Enter it in the form below.
Given the meteoric rise in insurance cost and the number of claims due to extremes in our climate, I can see why an increase in questions about insurance from readers and those who attend our presentations have become so popular.
One such question about home insurance and a planned renovation came up and I was asked if something extra was required. While I can’t say additional insurance is “required”, given today’s environment where lawsuits seem to be the norm, there are some steps I would certainly recommend. If you are acting as your own contractor, hiring the sub trades and supervising the work
done then there are some steps to know and proper insurance is one of them.
First Steps to Insuring Your Renovation
First on the list is to contact your home insurance company and advise them you are planning a major renovation or addition to your home. By experience I have found that no two home insurance companies are the same as to how they handle this change in your home size or value.
Once you start to obtain quotes from trades, make sure they carry public liability insurance and that they are properly covered with provincial workers compensation insurance for their employees. Ask for copies of the policies to be included with their quotations. If they can’t provide this, pass on hiring this company.
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Builder’s Risk Insurance
One kind of additional insurance for anyone contemplating a major renovation or addition is known by a couple of names. “Specialized renovation insurance” is one name but the term I am most versed in is called either “construction insurance” or “builder’s risk insurance” with BRI being the most commonly called name.
This is not a blanket policy for any reno – you buy what your project calls for. If you have elected to hire a general contractor or project manager then they will likely require this coverage. Builder’s risk insurance helps protect from major property damage like a fire, explosion, lightning, theft, vandalism or some acts of god like a hurricane.
Normally the homeowner will purchase this added protection. Sometimes anyone with a financial interest in the project may require this policy to be in place with them listed as a beneficiary. This may include your actual general contractor, some sub-trades, if a lender is involved and possibly even your architect or site engineer. Sometimes the policy contains additional living
expenses, rental value and things like delays due to supply or equipment breakdown. The last two points are usually only included if it’s a very large project.
I have never seen a policy like this cover acts of war, poor design or workmanship, government action or contract penalties. Some of these conditions are usually covered in the service contract signed between the homeowner or general contractor and the trades or suppliers involved. If you are building a new home then your builder should be registered with the provincial new home warranty program and this is supposed to cover defects in workmanship and materials.
Warranties and Other Protections for Homeowners
The only provincial warranty for home renovations that I know of is in Alberta. The Canadian Home Builders Association has a membership class for home renovators called RenoMark. Their members often offer a 2-year warranty for their work and materials as part of their service contract.
Another type I have heard of is called a “Trades and Contractors” policy that is sometimes bundled with a liability policy to protect the homeowner in case of injury to the client or a tradesperson while on the site or damage to the property.
These kinds of renovation policies often have a policy period that usually starts when the construction contract is signed (if you have a general contractor involved). If you are acting as your own general contractor this type of insurance should be in place about the same time you obtain your renovation permits.
I have seen cases where the bank has stated the start date for additional insurance if financing is involved. I have seen cases where the occupancy permit for the project is required before the policy can be terminated and in other cases a 60 day rider is included after the occupancy permit is issued.
One situation that is very common on an occupancy permit are “to be completed” small areas that allow the client to occupy the home
and in this case it will be up to the bank, general contractor or homeowner to decide when the builder’s risk policy should terminate.
Not all insurance companies write this type of insurance and not all brokers are versed in packaging this specialty type of insurance. In two cases that I am aware of the bank had its own brokerage provide the policy so this may be an area to investigate. If at all possible get two or three quotes with respect to coverage.
It is no secret today that insurance coverage is becoming more difficult to obtain at a reasonable cost and in some cases coverage is not available. This is generally in areas of known fire or repeated flooding conditions. I have just gone through an online business liability insurance fiasco and I question if I will
ever use an online insurance company again. Being able to face-to-face with a broker who can understand your situation and go to bat for you should this be needed, is likely a wise step.
Lastly, before you sign the builder’s risk policy, review the policy limits, understand exclusions and what the coverage includes. Alongside this review, go over your final homeowner’s policy with respect to coverage, contents and extras once the project is completed so you have some idea of how much your final home insurance bill will be.
Read more on this topic in Rates Up, Coverage Down: The New Reality of Home Insurance in Canada
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Have a Home Renovation Question?
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