When planning building works on your own home, it is important to consider the cost and implications of insurance as early as possible. When your home is undergoing renovation, your insurance policy may become invalid as the risk of something unexpected happening increases significantly, to both your home and contents.
Many choose to take a cheap and easy option as they find it difficult to find an appropriate insurance solution without talking to specialists. A potential outcome of which can be seen in the video below, where we see a homeowner’s home collapse during renovation works without them having suitable insurance in place; this led to them suffering uncovered losses of £250k. This video highlights the importance of approaching an insurance broker who will analyse the renovation risk and help ensure the homeowner is covered against liability should the contractors cover fail.
Here are 5 areas of consideration when it comes to planning your renovation, and why we believe it is pivotal to seek specialist advice from the likes of McClarrons, to ensure you have an appropriate policy in place.
- Use a contract
Over 20% of property owners do not use a contract when conducting works on their home. However, contracts can be crucial in giving property owners protection. Typically, a JCT contract would be used, this is an off-the-shelf product that forms a contract between the property owner and contractor.
A contract is important because it sets out who is in charge of what and the roles and responsibilities of both parties, as well as what happens if the work needs to be delayed or altered by the property owner. In the event that work is not progressing or not executed in the timescales or at the standard the property owner expects, this contract will explain what happens and will set out rules for remedy or termination.
- Use JCT compliant insurance
A JCT contract writes the responsibility for the works into joint names. Standard property insurance cannot accommodate joint names, hence the need for a specific renovation policy. A renovation policy will list the property owner and contractor as joint insured. The property owner’s insurable interest is in the property and is holistic, whereas the contractor only has temporary insurable interest for the duration of the works. It is important to consider at this stage whether the insurance policy includes a ‘non vitiation clause’, which ensures the policy remains operative if a contractor’s insurance is cancelled due to breach of a condition of their insurance policy. For example, a builders insurance policy being cancelled or voided due to acts of fraud, misrepresentation, or non-disclosure.
- Get the sums insured correct
The building sum insured needs to be sufficient to cover the property at the start of the works, including debris removal and architect fees. Irrespective of works, we would always recommend using a RICS chartered surveyor to assess your building sum insured and having this refreshed every 3-5 years. The sum insured for the works should include everything related to the project, including labour, materials, professional fees, debris removal, reinstatement costs and any bona fide sub-contractors working outside of the main contract.
- Contractors’ insurance isn’t king
It is good advice to check that your contractor has a valid insurance policy as they need to hold Public Liability and Employers’ Liability as a bare minimum. However, we strongly recommend you do not rely on your contractors’ insurance to cover your property during the works. Here, we outline some of the reasons why:
- Contractors’ policies are often insured with lower rated insurers, which means the capital backing the product may not be secure
- Policy wordings vary, which means you may be exposed unless you are willing to digest and understand the whole document
- Terms and conditions can easily be broken without your knowledge
- If the contractor is the insured, in the event of a claim you will not be an insured party on the policy and will not be able to speak and negotiate with the insurer leaving you with little control or oversight of the situation
- If there is an incident, not specifically related to the works and the contractors activities, this will not be covered on the contractor’s insurance policy. For example, an electrical fault in another part of the property causes a fire.
Purchasing a renovation policy means you could benefit from the following:
- You are in charge of the cover, know the endorsements and conditions of the insurance and know that the premium has been paid, which means you have total clarity on how you are covered and where any gaps my lie
- You know that in the event of the claim you can speak with insurers and negotiate settlement, giving you more control over the outcome
- If your property is mortgaged, you will be able to evidence insurance cover. By relying on the contractor’s policy, it is likely that you will breach the terms of your mortgage
- The balance of the insurable interest lies with the property owner, therefore it makes sense that you would want to ensure the right protection is in place for your property.
- As mentioned earlier, the ‘non-vitiation clause’ means that the contractor cannot void the policy for the property owner, for example through breach of warranty.
- Allow extra time and money
Although renovation cover will likely cost a fraction of the overall cost of works, it may be the case that the cover is more expensive than your normal home insurance. Two of the rating factors are the cost and the length of the project. 87% of all home building works overrun and 92% go over budget; we would therefore always recommend erring on the side of caution with both of these figures. If this is the case, it can be costly to extend a renovation policy, compared to starting the policy with some leeway catered for.
Seeking professional advice from an insurance broker who offers guidance in selecting appropriate cover can help ensure your home and contents are adequately covered should the worst happen. For specialist knowledge and advice on Home Renovation Insurance, contact our private client insurance team, McClarrons Affinity, at affinity@mcclarroninsurance.com or on 01653 602634.
