Fixer-Upper Insurance: Protecting Your Renovation Project

Buying a fixer-upper home can be a great investment, but it's important to consider the costs of renovation and insurance. Obtaining insurance for a fixer-upper can be more challenging and expensive than for a regular home, as these properties are considered higher risk by insurance companies. During the renovation process, there are additional risks, especially if the home is vacant. A standard homeowner's insurance policy may not be sufficient for a fixer-upper, and specialised insurance may be required.

Conventional insurance

If your fixer-upper only needs some basic repairs and you plan to move in within 30 days of closing, you can likely get a conventional insurance policy through a traditional insurance company. However, if the home is in poor condition, or you don't plan to move in for several months, or if major repairs will take a long time to complete, a traditional insurance company may recommend another type of insurance policy specifically designed for higher-risk situations.

When shopping for conventional insurance for your fixer-upper, it's important to be transparent with the insurance company about the condition of your home and the scope of the planned renovations. Get a home inspection and share the report with potential insurers to help them understand the work that needs to be done. This will also give you a more accurate idea of the coverage you need and help you budget for the necessary repairs.

Keep in mind that insurance companies may charge higher premiums for fixer-uppers due to the increased risk associated with vacant and under-construction homes. Additionally, if you plan to live in the home while renovations are ongoing, make sure your conventional insurance policy covers liability for any contractors or subcontractors working on the property.

Once your renovations are complete, be sure to shop around for insurance again. Moving to a conventional policy with adequate coverage will help you save money and provide better protection for your home in the long run.

Builder's risk insurance

Builders Risk Insurance

Fixer-uppers are different from regular homes when it comes to insurance. A builders risk insurance policy is often recommended based on these risks. You may live in the fixer-upper while remodelling or it may be vacant during the renovation. The renovation work could include anything from simple interior upgrades to extensive work or even rebuilding the entire structure.

A builders risk insurance policy provides the extra coverage your project needs to ensure complete protection throughout the renovation. It covers the fixer-upper home in the same way it does a commercial building or any other construction project. The policy is written based on the actual cash value (ACV) of the home minus depreciation plus the cost of renovations. Any new building materials and renovation items such as windows, doors, flooring, appliances, etc. are covered at the purchase price plus the cost of installation.

Materials delivered to the home are covered upon arrival. If any of these items or the entire house are lost due to a covered peril, they will be replaced as outlined in the policy. Just make sure you keep all receipts and records of the remodelling project.

Builders risk insurance provides higher levels of liability coverage than a basic homeowners policy. This is important as hired contractors and others will be working on the home, increasing the risk that someone may be injured. A policy from a builders risk insurance company is essential if you will oversee the project, act as the general contractor, and hire subcontractors to perform the actual work. It is particularly significant if the subcontractors do not have their own liability insurance.

Policies from a builders risk insurance agency also cover certain “soft costs” associated with your fixer-upper project. These costs may include things such as construction loan interest, property tax assessments, architectural consulting fees, legal fees, license and permit fees, and certain others.

Before you start that fixer-upper project, be sure your investment in property, materials, and time is well-protected with builders risk insurance. Should anything happen while your project is underway, the loss will be covered. This type of policy purchased through a local builders risk insurance company will ensure you can continue working until the house is completed.

Vacant dwelling insurance

It is important to note that vacant dwelling insurance does not cover the land or other assets associated with the property, only the structure itself. Additionally, certain hazards on the property, such as ponds, swimming pools, or trampolines, may disqualify the home from being eligible for this type of insurance.

Policy lengths for vacant dwelling insurance can vary depending on the needs of the homeowner. Some insurance providers offer flexible policy terms, such as three-, six-, or 12-month options, to accommodate the expected duration of the vacancy.

When considering vacant dwelling insurance, it is recommended to shop around and consult with multiple insurance providers to find the best coverage for your specific situation. It is also essential to carefully review the policy provisions and understand the specific coverages, exclusions, and limitations of the insurance plan.

HO-8 insurance

HO-8 coverage is a "named-perils" policy, meaning it only covers specific types of damage listed in the policy; everything else is excluded. The policy covers losses caused by ten specific perils: civil unrest and riots, hailstorms and windstorms, vandalism and malicious mischief. It is important to note that HO-8 policies do not cover as many perils as HO-3 and HO-5 policies, which are more common and provide "open perils" coverage.

Under an HO-8 policy, the insured's dwelling, personal property, liability, and loss of use are covered. The policy covers the home and other structures (detached garage, fencing, etc.) up to the actual cash value. Liability coverage protects against the cost of injuries or damages that the policyholder is found at fault for. Personal property coverage includes clothing, furniture, home decor, and electronics, and is covered for its actual cash value rather than its replacement cost.

There are several exclusions to HO-8 policies. They do not cover damage caused by earthquakes, falling objects, or floods. Additionally, damage caused by frozen and burst pipes, accidental discharge, and water backup are typically excluded. HO-8 policies also do not cover vandalism to vacant dwellings, building code enforcement, or general wear and tear.

FAIR plans

If you are having trouble insuring your fixer-upper home, a FAIR plan may be an option to consider. These plans offer basic insurance coverage for high-risk properties, including fire insurance, and can be purchased through licensed insurance agents or brokers registered with the FAIR Plan. Keep in mind that FAIR plans are intended as a temporary solution, and you should aim to transition to a conventional insurance policy as soon as your repairs are completed.

Frequently asked questions