Factoring renovations insurance into your budget is a must if you're planning renovations work in your home, whether you've just purchased it or been living in it for a while. However, it can be difficult to work out when it's needed, especially for first-time homeowners.
With this in mind, experienced renovator Michael Holmes offers advice on renovations insurance and how it will impact the process of costing a renovation.
Do you need renovations insurance?
Unless you intend on moving into the property straightaway, you will need to arrange either empty buildings insurance or site insurance to protect the building against damage and to provide public liability cover. It's worth noting that conventional buildings insurance will not be valid (and claims may not be paid out) if a property stands empty for more than 30 days, or is not hospitable.
Some insurers will extend empty buildings cover, if notified, but this may only provide insurance for basic risks, such as fire, lighting, earthquake, explosion and impact by aircraft.
Empty buildings cover is typically dependent upon:
- Regular inspection (at least every 14 days);
- The condition that water systems are drained down and the mains isolated;
- Mains electricity and gas isolated.
Insurers will also usually require:
- Waste to be cleared out
- The letterbox sealed
- Security shutters (in some postcodes)
Examples of when you need renovations insurance
There can be a lot of confusion around when you need renovations insurance if you're not renovating the whole house. Do you really need it if you're only redoing the bathroom, for example?
The answer is: you do if 1) there will be structural changes made to the property, even if it's just knocking through a wall, and 2) the extent of the renovations works is such that you will be required to vacate the property for the duration. For example, if you're completely re-plumbing and and replacing your bathroom, you won't be able to use it, hence you'll need renovations insurance. Other examples of works that need this type of insurance include:
- Full kitchen remodelling;
- Knocking down or rendering of walls;
- Full house electrical rewiring;
- Building an extension or conversion
You won't need renovations insurance for cosmetic work such as repainting or replacing cabinets/a bath.
What should site insurance cover?
- New works: The physical elements of the project, including the existing structure, materials and temporary works throughout.
- Public liability: For accidental damage to someone else or their property but not an employee.
- Employers’ liability: A statutory requirement, it applies where an individual agrees to provide their labour to you. It covers you in the event a worker is killed or injured on site. It is not needed if you only employ family members.
- Loss or damage of plant and equipment you own or have hired.
- A caravan and contents, plus personal possessions.
- Personal accident: If you are injured while project managing the work, this will provide money towards a temporary manager.
- Legal expenses if there’s a contractual dispute.
The alternative of site insurance is likely to prove more cost-effective for a project that is to be renovated or converted. Cover from specialists should include all risks to the building plus public and employer’s liability. Cover should be taken out for the duration of the build, starting from the moment you purchase the property – or if it is your current home, the day you move out.
What is the cost of site insurance?
This will depend on the retained property’s rebuild value, postcode risk (according to the local area’s claims records), the value of the new building works and the term of the insurance.
Does your builder's site insurance cover everything?
So long as the contractor has a valid contractor's all risks insurance policy, with a limit that meets or exceeds the full rebuilding cost of the project, there is a written contract between both parties stating that they are responsible for the whole project to the point of handing you the keys to a completed property, you should be okay. However, if that contractor is building the shell and you are taking over from there, you will have no cover when they have left the site.
Do you need to tell your insurer if you're living in while renovating or extending?
If your home improvement project simply involves decorating, or adding a new bathroom or kitchen, you will not need to tell your insurer, although you should increase your level of cover if the rebuilding cost is increased.
If you are undertaking large-scale renovation work or an extension that could increase the risk of damage to the building or contents – for instance, exposing the property to the elements – you should inform your insurer, as most home policies exclude alteration and renovation as standard. Failure to do so could lead to your policy being cancelled and any claims declined.
Those insurers that will extend some cover may exclude key risks, such as collapse during the knock-through between the existing house and new extension. Bear in mind that the work in progress is unlikely to be covered, so you need to ensure this is included in your contractor’s all-risk insurance, or else arrange your own separate cover. Once the work is completed, you must remember to increase the level of buildings cover to reflect the new rebuild cost.
What is the cost of extending your insurance?
Expect to pay a small additional premium on top of your existing buildings and contents policy.
Do you need specialist insurance if you're not using a main contractor?
If you’re not using a main contractor with sufficient contractor’s all-risk insurance to cover the whole project – for instance, because you have opted to use subcontracted labour and/or DIY, or a builder for only part of the works – then you must arrange your own cover. Look for an all-risks policy for extensions, home improvements or renovations that provides the following level of cover:
- Contract works (including building in progress, materials, plant, tools and temporary buildings);
- Employer’s liability insurance;
- Public liability insurance;
- Personal accident cover;
- Legal expenses cover.
Where relevant, you may also choose to add on party wall insurance (JCT Clause 6.5.1) (see below).
What is the cost of specialist insurance?
The premium will depend on the postcode area, who is undertaking the works, and the nature and valuation of the works.
Do we need JCT 6.5.1 Non Negligent Cover for our renovation project?
Joint Contracts Tribunal (JCT) Clause 6.5.1 Insurance, also known as party wall insurance, protects against liability for damage to nearby properties resulting from works undertaken by your contractor or subcontractors.
Public liability insurance (see below) will protect against claims where damage has resulted from negligence, but JCT Clause 6.5.1 will protect you and your builders against claims for damage to third party property where it cannot be proven it has not been caused by the negligence of the contractor or subcontractors – such as collapse, subsidence or heave, vibration, weakening or removal of support. This means that the damage has not been sudden, identifiable and unexpected, but has occurred over a longer period of time as a result of the works.
What is the cost of party wall insurance?
The premium will be a single payment, based on the level or risk calculated according to the postcode area, the nature of the works and the contract value.
Do you need public liability insurance?
Public liability insurance is one of the first kinds of protection you should obtain when renovating your property because it will ensure that you won’t be solely responsible for injuries to builders and contractors. This kind of coverage also protects against damage to their property caused by your renovation proceedings.
Most importantly, public liability coverage will also protect any contractors you have hired to carry out your renovation. This is an important stipulation to present to potential construction companies so that they can renovate your house with peace of mind. In fact, many contractors will require it before they even step foot on your property to work.
In the case of an accident, public liability insurance covers legal fees, medical bills and repair costs to damaged property. This means that you won’t have to worry about shutting down your renovation due to insufficient funds, so the insurance is beneficial to all parties involved.
What is property owners' liability insurance?
Property owner’s liability coverage works in the same way that public liability insurance does for guests and visitors, whether they are invited or unwanted. Part of completing a renovation includes opening up your property to inspectors and other officials who will grant you certification, and property owner’s liability insurance is designed for them. Also, if your property does not yet have walls or doors, it could be vulnerable to trespassers who could actually sue you if they get hurt.
Do you need specialist insurance for a conversion project?
The first-time conversion of, for example, a barn, church, office or school or the renovation of a dwelling empty for 10 years or more, will need empty buildings insurance in place immediately after exchange of contracts. Where permission for residential conversion has been granted on an exception to the normal policy preventing new dwellings in open countryside, specialist insurance is required, as total loss of the building could invalidate the planning permission.
Once work starts, specialist insurance covering the value of both the existing building and new works, combined with contractor’s all-risk insurance, is needed. You should also take out a guarantee for ongoing protection.
What does specialist conversion insurance cost?
The premium will be calculated according to the rebuild value of the existing retained structure and the building works, and the risk level (assessed by postcode area and security of the site). Cover is typically for 12 months.
How do restrictive covenants affect insurance?
Restrictive covenants put in place by former owners of a piece of land can control its future use for the benefit of nearby landowners, and can be worded so that the benefits pass on to future owners. Checking the title deeds to your property (available from your solicitor or HM Land Registry) will reveal whether there is a valid restrictive covenant that could prevent you from developing your property.
If a covenant exists, you should firstly see whether indemnity insurance is available to provide you with protection in the event that a beneficiary of the covenant takes legal action against you for being in breach. Do not contact the beneficiary before speaking to an insurer.
What does indemnity insurance cost?
Specialist insurers will assess the covenant’s enforceability, the likelihood of the beneficiaries coming forward, and the extent of possible damages and set the premium – a one-off payment – accordingly.
Do you need a structural warranty?
If your home is flooded in a storm – then your home insurance pays for it. But if that flooding is deemed to be caused by the roof collapsing because it was not correctly braced when built, that is classed as defective workmanship and would be excluded by the home insurer. They would simply suggest you sue the builder, which in raw terms is you. This is why structural warranty is so important on self-build properties.
The warranty provider checks the design of the build and the construction using a series of technical audits to make sure there is no defective workmanship, or materials. Defects identified along the way have to be remedied prior to issuing cover.
A warranty provider can often facilitate the handling of the building regulations plan check and site inspections by an approved inspector so you don’t have to use the local authority. You can normally save money following this route because if you do decide to use the local authority, the warranty provider still has to do warranty inspections alongside the local authority so you effectively get charged twice for the same thing. Arrange the warranty early on. Basically, the premiums escalate the further through the project you leave it.
It’s possible to cover completed properties on a structural warranty retrospectively which can be useful if you didn’t get a warranty in place at the start of the build as it enables a prospective purchaser to raise a mortgage on the property. A completed warranty is an expensive option when compared to purchasing it at the start of your project.
Will buyers want a guarantee for a renovated home?
A future buyer of your home will expect to see copies of the planning permission and building regulations certificates for any work that has been undertaken under your ownership, and will be further reassured if the work is covered by a transferable insurance-backed warranty. This may apply to new windows, a new roof, energy-efficiency features or a whole extension or renovation project. The main warranty providers include:
Federation of Master Builders: The FMB offers a warranty scheme via its members, which provides similar cover to a new home warranty, including:
- Loss of deposit up to 10 per cent of the insured value of the works;
- Liquidation cover or refusal to complete the works during construction, up to 10 per cent of the insured value;
- Two years’ protection against structural defects or faulty workmanship;
- Eight years’ protection against structural damage or water ingress.
National House Building Council: NHBC offers 10-year Buildmark cover for converted and renovated homes via registered contractors. This provides the following cover:
- Deposit protection;
- Insolvency protection;
- Two-year cover for failure of the contractor to meet NHBC Standards (contractor is liable for any defects in this period);
- Eight years’ insurance for any latent structural defects.
Home Improvements Guarantee: HIG offers an insurance-backed guarantee for work undertaken by its network of vetted and approved contractors for a period of up to 10 years.
- As well as extensions and whole-house renovations, contractors can cover garage and loft conversions, window replacements, roofing, bathroom and kitchen fitting, electrical works, plumbing and heating works and landscaping projects.
- Payments are made via escrow client account, which is released in stages in arrears (or in full for small projects), giving protection.
HomePro: Deposit and payment protection plus an insurance-backed guarantee for varied home-improvement projects via a network of 3,500 tradespeople across the UK.
- Deposit protection lasts for 90 days from payment.
- The insurance cover lasts for up to 10 years depending on the category of the works.
- As well as extensions and conversions, cover is available for carports, roofing, windows and doors, kitchen and bathroom fitting, solar panels, loft and garage conversions, and driveways.
BondPay: A payment protection service that holds your money in a secure account with payment made only once work is completed – either in whole for smaller jobs or to agreed stages for large projects.
- The finished work is guaranteed for 12 months for no premium.
- The benefit of the guarantee can be passed on to another buyer for a small premium.
What is the cost of an insurance-backed warranty?
The premium for taking out a warranty will depend on the level of risk (the contractor’s rating based on their experience and claims history) and the value of the contract. You must request that cover is put in place and ask for a registration certificate.
- FMB Build Assure
- Home Improvements Guarantee
- National House Building Council (NHBC)
- Self Build Zone