Does Home Insurance Cover Renovations in Ontario? Coverage Gaps, Claim Traps, and the Underinsurance Penalty

Nearly half of Ontario homeowners who complete major home renovations never tell their insurer. That statistic, from a 2025 LowestRates.ca survey, should alarm every homeowner with a contractor on speed dial. Because the question "does home insurance cover renovations?" has a more complicated answer than most people expect, and getting it wrong can cost you tens of thousands of dollars at the worst possible moment.

The short answer: your standard home insurance policy was designed for a finished, occupied dwelling. The moment you start tearing out walls, rerouting plumbing, or adding square footage, the assumptions your policy was built on start to shift. Some work stays fully covered. Some creates gaps that can void your claim entirely. And after the project wraps, the single biggest risk is one most homeowners never see coming: being underinsured for the home they just improved.

What Your Standard Policy Actually Covers During a Renovation

A standard Ontario homeowner's policy covers your dwelling, personal property, and liability against named perils (or all perils, depending on your policy form). That coverage doesn't automatically disappear the moment a contractor shows up. But it was underwritten based on a specific description of your home: its size, construction type, finishes, and occupancy.

Minor cosmetic work generally stays within your existing coverage. Painting a room, replacing light fixtures, upgrading a faucet, or swapping out flooring in a single room are maintenance-level projects that don't materially change your home's risk profile or replacement cost. You don't typically need to notify your insurer for this kind of work.

Major renovations are a different story. Projects that involve structural changes, electrical or plumbing work, roof removal, additions, or gut renovations change the nature of the risk your insurer agreed to cover. At this point, your standard policy may not respond the way you expect.

Four Ways a Renovation Can Void or Limit Your Coverage

1. The Material Change in Risk

Ontario's Statutory Conditions (built into every property insurance policy in the province) require you to promptly notify your insurer in writing of any material change in risk. A material change is anything that would cause a reasonable insurer to decline the risk, increase the premium, or alter the terms of coverage.

Major renovations clearly qualify. If you're gutting a kitchen, finishing a basement, adding a second storey, or rewiring the house, your insurer needs to know. If you don't disclose the work and then file a claim, your insurer can argue non-disclosure of a material change and deny coverage. Courts have upheld this principle repeatedly.

2. The Vacancy Clause

Most Ontario home policies include a vacancy provision that restricts coverage when a home is unoccupied for more than 30 consecutive days. If your renovation forces you to move out for two or three months, certain coverages, particularly water damage, vandalism, and sometimes theft, can be suspended or excluded entirely.

This is the trap that caught headlines in Ontario: a homeowner vacated their home for a four-month kitchen and main-floor renovation. A burst pipe during winter caused $60,000 in damage. The claim was denied because the home was classified as vacant under the policy terms. A simple vacancy permit, arranged through a broker before moving out, would have kept that coverage intact.

3. The Construction Exclusion

Standard homeowner policies exclude damage arising from construction activity on the property. Your policy was underwritten for a finished dwelling, not an active job site. A fire caused by a contractor's torch, water damage from an exposed roof opening, or theft of building materials may all fall outside your standard coverage.

For substantial projects, structural work, additions, gut renovations, or anything requiring a building permit, a builder's risk policy (also called course of construction insurance) fills this gap. It covers the structure and materials during the construction period against perils like fire, theft, vandalism, and weather damage. It typically costs between 1% and 4% of the total project value and runs for the duration of the work.

4. Unpermitted and DIY Work

Ontario's Building Code requires permits for most renovations that involve structural, electrical, or plumbing work. From an insurance perspective, unpermitted work creates a serious exposure. If faulty wiring from an unlicensed electrical job causes a fire, your insurer can deny the claim on the basis that the work was not performed to code. The same applies to DIY plumbing that later causes a flood.

Licensed tradespeople carry their own liability insurance and (in construction) are required to have WSIB coverage. If your contractor doesn't carry WSIB and a worker is injured on your property, you could be personally liable for the cost of that injury. Always ask for a Certificate of Insurance and a WSIB Clearance Certificate before work begins.

The Underinsurance Trap: What Happens After the Renovation

The coverage risks during a renovation get most of the attention. But the bigger financial exposure often comes after the project is complete, when homeowners forget to update their dwelling limit.

How Renovations Change Your Replacement Cost

Your home insurance dwelling limit is based on replacement cost: the amount it would cost to rebuild your home from the ground up using similar materials and labour. Renovations that add square footage, upgrade finishes, or modernize systems directly increase that replacement cost.

Consider the numbers. A finished basement in Ontario can add $30,000 to $80,000 in replacement value. A full kitchen renovation might add $40,000 to $100,000. A second-storey addition can add $150,000 or more. With residential building construction costs in Canada having risen 66% since 2019 according to Statistics Canada data cited by the Insurance Bureau of Canada, the gap between your old dwelling limit and your new replacement cost can be substantial.

The Co-Insurance Penalty

Here is where the math gets painful. Most home insurance policies include a co-insurance clause that requires you to insure your dwelling for at least 80% of its replacement cost. If you fall below that threshold and file a claim, your insurer doesn't simply cap the payout at your dwelling limit. They apply a co-insurance penalty that reduces your claim proportionally.

How the penalty works:

Suppose your home's actual replacement cost after renovations is $800,000. An 80% co-insurance clause means you need at least $640,000 in dwelling coverage. But your policy still shows the old limit of $500,000 because you never called your broker after the renovation.

Now a kitchen fire causes $100,000 in damage. Your insurer calculates:

($500,000 carried / $640,000 required) x $100,000 loss = $78,125

After your deductible, you might receive around $73,125 instead of $95,000. That is a penalty of roughly $22,000 on a single claim, and you are still paying for full premiums on a $500,000 policy. The gap comes entirely out of your pocket.

The penalty scales with the gap. The further your dwelling limit falls below the co-insurance threshold, the steeper the reduction on every claim, even small ones.

Guaranteed Replacement Cost: A Safety Net, Not a Free Pass

Some Ontario homeowners carry a Guaranteed Replacement Cost (GRC) endorsement, which promises to rebuild the home even if the actual cost exceeds the policy limit. This is valuable protection, but it is not a blank cheque. GRC endorsements typically require that the homeowner has accurately reported all changes to the dwelling. If you renovated and never disclosed it, the insurer can argue that the dwelling description on the policy no longer reflects the actual home, and the GRC may not apply.

Even with GRC, keeping your dwelling limit current ensures faster claims processing and avoids disputes.

Renovations That Can Lower Your Premium

Not every renovation increases your insurance cost. Upgrades that reduce risk can earn you meaningful discounts:

• Electrical upgrades: Replacing knob-and-tube or aluminum wiring with modern copper wiring removes one of the top fire-risk surcharges on Ontario home policies.
• Roof replacement: A new roof, especially with modern shingles rated for wind and impact, reduces the risk of water intrusion and weather damage.
• Plumbing upgrades: Replacing galvanized steel or polybutylene pipes with copper or PEX eliminates a common source of water damage claims.
• Sump pump and backwater valve: These protect against basement flooding, one of the most frequent and expensive home insurance claims in Ontario.
• Monitored alarm system: Reduces theft and fire risk, earning a discount with most carriers.

The key is to tell your broker about these improvements. The discount only applies once the upgrade is reflected on your policy.

What to Do Before, During, and After a Renovation

Before the project starts:

• Call your broker and describe the scope of work, timeline, and estimated cost. Your broker can confirm whether your current policy covers the work or whether you need a builder's risk endorsement.
• Verify your contractor carries commercial general liability insurance (minimum $2 million) and WSIB coverage. Ask for certificates.
• Confirm whether your municipality requires a building permit for the work. Unpermitted work can create claim problems down the road.

During the renovation:

• If you need to vacate the home for more than 30 days, arrange a vacancy permit through your broker before you move out.
• Keep receipts, contracts, and photos of the work in progress. These are invaluable if you need to file a claim later.

After the project is complete:

• Call your broker to update your dwelling limit. Provide details on the finished work: materials used, square footage added, systems upgraded.
• Ask your broker to run a new replacement cost estimate. Construction costs have increased significantly in recent years, and your pre-renovation estimate may already have been outdated.
• Ask about premium credits for risk-reducing upgrades like new electrical, roofing, or water protection systems.

The One Call That Protects Everything

A 2024 CIBC survey found that nearly half of Canadian homeowners are actively planning or completing renovations, with average spending nearly doubling to $19,000 since 2019. That is a significant investment in your home, and it deserves the same attention to protection that you give to design and budgeting.

The single most important step is also the simplest: call your broker before the project starts and again after it wraps. That conversation takes ten minutes and ensures your coverage matches your home as it actually exists, not as it existed when you first bought the policy.

If you're planning a renovation in Durham Region, reach out to our team and we will review your current policy, identify any gaps, and make sure your investment is fully protected from the first day of demolition through the final coat of paint.

Looking for a step-by-step renovation insurance checklist? Read our companion guide: [Home Renovations and Insurance: What Your Broker Wants You to Know Before You Start](/blog/home-renos).