Communication the best way to avoid home insurance woes

From government incentives to the recession - there have never been more reasons to renovate your home.

Recent numbers from the Canadian Mortgage and Housing Corp. show nearly half of all Canadian homeowners are planning a major renovation in the coming year. The number climbs higher in big urban centres.

That's good news - for homeowners, the construction and renovation industry, and the economy. But renovations need to be done with forethought and planning, experts say. And perhaps one of the first and most important calls to make is to your insurance broker.

Many people don't think about the impact home renovations can have on their insurance policies, said Kevin McIntyre, the president of Underwriters Insurance Brokers in Kamloops. Others perhaps don't want to make the call, fearing their premiums will rise if they do.

Both scenarios represent mistakes with the potential to cost a homeowner significantly if things go wrong and insurance is required. In the best case, homeowners might lose out on coverage. In the worst case, they might see their policies voided.

McIntyre said insurance companies pay out more than 98 per cent of all claims. Regardless, there are circumstances that do lead to policies being questioned or voided.

Changing the nature of a residential situation with renovations without the broker's knowledge is perhaps the fastest way to cause insurance problems.

For example, a home that is insured for a single family might be in contravention of a policy if the owners build a suite in the basement and rent it out.

In most cases, the addition of a suite won't be a problem, but it might cost additional premiums. McIntyre said higher premiums reflect the fact the risk to be covered increases with the number of families in a house. Insurance companies want to know about such change before claims are made - not after.

The same is true if a homeowner converts a portion of a house for use in a home-based business. Some kinds of work - woodworking and carpentry, for example -will alarm most insurance companies because of the high risk of fire such enterprises carry. People who turn their garage into a woodworking shop without telling their broker are taking big risks with their policy.

Most times, though, setting up a home office or working from home causes no trouble but once again, it's best to let the broker know, so notations can be made on the policy's file.

Any time homeowners make big changes to their house - including the way they use it - and don't tell their broker, they run the risk of making insurance claims needlessly complex.

"If you change what was understood to be insured, your policy is potentially voidable," he said. "It's all about communication."

Some kind of do-it-yourself home improvements will also cause problems with a policy, he said. For example, if a homeowner installs a wood stove in their home and fails to get it properly inspected and certified, fires that result will almost certainly not be covered.

But homeowners do not have to fret performing run-of-the-mill repairs and improvements to their houses.

"You can put an (electrical) plug in yourself. Nothing like that will negate or invalidate your insurance," McIntyre said.

Renovations that increase the value of the home also need to be reported to the insurance company, McIntyre said.

Companies will be extremely reluctant to pay out "guaranteed-replacement values" on a house if the claim is much higher than what the insurance company believed was insured.

Any time people do more than $5,000 of improvements to their home, they should pick up the phone and call their broker, McIntyre said. Many times, the improvements will not lead to higher premiums. Often the broker will simply ask a few questions and make a notation on a file.

"A lot of this stuff is just about letting us know," he said

Another question many people have is with regard to liability when allowing contractors or workmen into their homes to do work. What happens if one of those workers falls off a roof? Are homeowners liable? Could they be sued?

For starters, most home insurance polices will pay the cost of defending lawsuits, he said. As well, insurance usually provides coverage for "domestic service" situations that lead to workers being injured.

McIntyre said the easiest way to guard against legal issues related to injury liability is to hire renovation contractors or construction companies that pay WCB premiums and employ trained workers.

But McIntyre said he knows many people commonly hire individuals to do casual work around a home, including jobs that might be considered risky or hazardous.

That does not automatically expose a person to the possibility of a lawsuit. A worker who hires himself out as a painter, for example, is assumed to have the skills and equipment required to do the work. If they are injured on the job, they will need to establish the homeowner acted in a way that caused their injury. Asking someone to work on a roof that is known to be rotting, for example, could well lead to lawsuits if someone falls through and hurts themselves.

McIntyre said there is one area that always causes trouble. Tough economic times sometimes push people to do things with their homes they might not otherwise do. Criminal things. Like growing marijuana.

These days, no insurance company will honour a policy in instances when homes are used to grow marijuana, whether the homeowner knew of the growing or not.

Are there other criminal activities that are guaranteed to cause insurance woes?

"Arson," said McIntyre. "You cannot deliberately burn your house down."

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