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Homeowners cautioned about ‘underinsurance’ when considering the HomeBuilder grant

5 min read
8 Jul 2020

On 4 June 2020, the Prime Minister announced a new grant of $25,000 to encourage Australians to build or renovate homes.[1]

However, our experts are encouraging anyone planning to take advantage of the new grant to consider the impact renovations will have on their home insurance – even if that impact is relatively small.

While new landscaping and renovations can add value to your home, they can also mean your home ultimately costs more to rebuild or repair should something happen in the future.

In 2019, the Housing Industry Association (HIA) noted that the average value of renovated kitchens and bathrooms was $26,280 and $19,553 respectively,[2]  either of which could have a considerable impact on your home insurance policy.

Furthermore, the Australian Bureau of Statistics (ABS) notes that the average cost of building a house increased by 59% between 2004-5 to 2018-19,[3] meaning the average cost of construction has gone up by over $110,000.

Increase in residential property construction costs
Type of propertyAvg cost to build in 2004-5Avg cost to build in 2018-19Percentage increase
House$200,802$320,23859%
Townhouse$163,999$280,28870.9%
Apartment$240,450$358,44849.1%
Source: Characteristics of new residential dwellings – A 15-year summary. Australian Bureau of Statistics, Australian Government. 2019.

Spokesperson for Compare the Market, Abigail Koch, warns Australians that their home insurance will only cover what your home was insured for before your renovations began – but thankfully, this can be fixed easily.

‘Renovations can add considerable value to your home, but they can also affect how much home insurance cover you need. While insurance premiums can become more expensive following a renovation, it’s very important that you update your insurer to ensure that you have an adequate level of cover for your needs – especially after putting money and time into a renovation.’

‘If you’re concerned about the cost of your insurance increasing, then it’s a great reason to review your policy, to make sure you’re getting the features and benefits you want at the right price for your back pocket.’

Does home and contents insurance cover renovations?

Not only do some insurance companies not provide any insurance if damage is caused by a renovation, those that do may only have limited cover available.

Here are some of the exclusions that renovators may face with home and contents insurance:

  • Certain types of work, such as removing external walls, removing the roof, or building underneath the home aren’t typically covered.
  • If the cost of the renovation work being done exceeds the amount of liability cover provided during a renovation (which is often limited), then the homeowner may not be covered until the work is complete.
  • Some events like theft, malicious damage, stormwater or rainwater damage may not be covered during a renovation as the home may be at a higher risk while alterations occur.
  • Some insurers won’t provide cover if the home is left unoccupied for 60 days or more and you failed to notify them of your absence.

Our experts encourage anyone wanting to give their home some TLC to review their home insurance Product Disclosure Statement (PDS) closely for details on what is and isn’t covered during a renovation, and to discuss renovations with their insurer before getting started.

Can anyone qualify for the HomeBuilder grant?

a happy couple embrace after home renovation is complete

The grant will be available for contracted work from 4 June 2020 to 31 December 2020, subject to applicants meeting the following eligibility criteria:

  • make the application as an individual (not as a trust or company);
  • be at least 18 years of age and an Australian citizen;
  • earn $125,000 or less per year as an individual, or $200,000 or less collectively as a couple (based on the applicants’ 2018-19 financial year tax return);
  • the home is a new build, and the house and land’s total value doesn’t exceed $750,000; or
  • the home is an existing property being renovated and the renovations cost a minimum of $150,000, but not more than $750,000, and the home isn’t worth more than $1.1million before renovations[4]

Note that the HomeBuilder grant exists on top of other home construction grants such as the First Home Owner Grant, so Australians can potentially be eligible for multiple grants.

What to do with your home insurance if you have a renovation

Abigail notes that there are two key steps for anyone planning a renovation:

‘Firstly, before you begin your exciting renovation project, you should reach out to your insurer to go through your plans and clarify what will, and importantly, what won’t be covered.

‘Once the renovation is complete and your home is looking amazing, you’ll need a real estate expert to evaluate what it’s worth, so you can then contact your insurer and discuss updating your policy. This way you’ll be covered for the additional value of your newly-renovated home and avoid being underinsured should something happen in the future.’

Sources:

[1] ‘HomeBuilder’ program to drive economic activity across the residential construction sector. The Hon Scott Morrison, MP, Prime Minister of Australia, Parliament of Australia, Australian Government. 2020.

[2] Kitchens and Bathrooms Report: Past Growth and Future Prospects 2018/19. Housing Industry Association. 2019.

[3] Characteristics of new residential dwellings – A 15-year summary. Australian Bureau of Statistics, Australian Government. 2019.

[4] HOMEBUILDER – Frequently Asked Questions. The Treasury, Australian Government. 2020.

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Written by James McCay

James is a devoted husband, father, animal lover and history buff (particularly medieval history). He studied Creative and Professional Writing at QUT, and is often buried in a book. James also enjoys historical re-enactment, spending time with his dogs, and making furniture out of reclaimed wood. He hopes to make a positive difference for readers through his writing.

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