House rules

Many homeowners look on home improvements as a financially prudent move when the market is suffering, but Sarah Coles says they should beware of the insurance implications

This has often been the time of year when homeowners start buying interiors magazines and getting a touch of the Laurence Llewelyn-Bowens. But this year, home improvements are of a different order entirely. As recession bites, thousands of people who have outgrown their houses realise now is not the time to move and many are making fairly dramatic changes to their homes. Whether they are building an extra bedroom in the loft or converting their basement into a luxury kitchen, there are serious implications for their insurance.

Many don’t realise they should contact their insurer when they start a major building project. Justin Gott, Underwriting Manager for Hiscox, says: “When we first insure people, our pricing and terms reflect the use of their home as a private residence. When they make improvements, all sorts of things may be happening in the home that increase risk and need to be underwritten.”

The level of risk depends partly on what is being done. Getting a painter in, for example, will slightly raise the danger of things such as accidental damage and petty pilfering, while a team of plumbers using blowtorches in the loft will seriously increase the possibility of fire. Some threats are also exacerbated by the economic climate. In tougher times, burglary, arson and vandalism are all more prevalent, and a building site is often a target for this sort of activity.

Cover for risk

To cover these increased risks, the first thing any client should do is to contact their broker to ensure the home insurance is still valid. Justin says: “The risk does increase, so insurers may charge a bit more, but at least the homeowner is properly covered for damage to their home and can be given best advice by their insurer.” There will also need to be insurance in place for the works themselves, including materials and equipment brought on site, and for any additional liabilities to third parties that may occur due to the project, both of which are usually arranged by the contractor. Justin says: “For larger or more complicated projects, we would want to check the paperwork and contracts to ensure the client is properly insured, and ideally hasn’t signed away the right to pursue the contractors for any damage they cause. This is a stressful time for a client, and we try to ensure everything is in place at the outset to avoid any issue in the event of a loss.”

There is no compulsion for the homeowner to inform Hiscox about any works under £50,000, but it is often worth having a discussion with their broker if the building works are particularly hazardous. Installing a £50,000 designer kitchen, for example, is generally less concerning than a £40,000 loft conversion. Once the works are complete, the homeowner should also review their insurance cover. Justin says: “If you have built an extension, for example, the total cost to rebuild the entire property will be higher. When the works are approaching completion, it is a good time to reappraise the rebuilding cost, as the client will often have access to a surveyor or architect who will be able to evaluate this.”

This won’t necessarily have a dramatic effect on the cost of cover. A £100,000 increase in the building’s sum insured, for example, would cost in the region of £20 a per month to insure, but it does need to be added or there may be insufficient insurance to cover a significant loss.

There will also be fixtures and fittings, furniture and all the things that go into kitting out a new room, so the contents insurance should also be reviewed. With the cost of furnishing a room now often including items such as sophisticated audio-visual equipment, expensive kitchen fittings or costly decorative finishes, it is important that these aspects are fully taken into account when considering the changes required to insurance cover.

If the building works are more unusual, the underwriting becomes more complicated. Justin says the key in these instances is for your client to use a reputable contractor with a proven track record, and to notify their insurer in plenty of time before the works commence. This will make getting insured more straightforward and will ensure all necessary cover is in place at the outset.

Of course, home improvements can be anything but straightforward. But whether clients are building a conservatory in the back garden or inviting Laurence Llewelyn-Bowen in for the full home makeover treatment, by keeping their insurers and brokers in the loop, that means there’s one less thing for homeowners worry about.