When starting a building project there are two questions that people ask about insurance cover. The first question is how much is it likely to cost? The second question is how little can I tell my insurance company?
To insure a building project properly need to budget between 5 to 10% of the project value. This seems expensive when compared to standard household or property owners insurance. The thing to remember is that when you bought your home insurance you were insuring a watertight box with locks and other defences against the weather and thieves. When you insure a building project you are no longer protecting a home, you are instead insuring a building site.
Not only will you disable your locks and other protection devices during the build but you are advertising to local nefarious individuals the fact that your property is no longer secure. You will be taking delivery of all sorts of building materials and equipment which thieves find particularly attractive. And then of course there is the weather. Without a roof or windows your property vulnerable to loss or damage from storm, flood, wind and rain.
Many people undertaking a building project think that the simplest answer to the insurance question is to telephone their existing home insurers and ask them to cover the property whilst it is undergoing renovations. In many cases customers discover that insurance company will refuse to cover their property whilst undergoing work.
If you are lucky the insurance broker or company that you use will tell you that your policy does not cover you for the work which is being undertaken. If you are unlucky your insurers may confirm that your policy continues to cover the property but may not mention that the cover is very restricted. In most cases a home insurance policy will be reduced to just providing cover for damage caused by fire, explosion and aircraft impact. Often this will not be explained by your advisor but the restriction will be found in the policy wording, normally when you want to make a claim.
As the most likely cause of damage to your home whilst it is undergoing repairs and renovations will be theft or some form of weather damage, the cover you are left with is not suitable to protect your property. This is why you need to buy proper renovation insurance.
A renovation insurance policy will provide cover for the existing structure, the new works and property owners liability for the period of your project. In addition to this you will need to check that your builder carries public and employers liability insurance and any experts that you use such as architects or surveyors, all have appropriate professional indemnity insurance which should be maintained for a period of 12 years after build completes.
Many customers think that it is preferable to rely on a builders insurance in respect of the works. Unfortunately this is not a sensible thing to do. The reason for this relates to control and ownership of the insurance policy.
When you start your building project you will undoubtedly believe that your builder for project will complete your project well and to time. And indeed this may be the case. Unfortunately however projects do go wrong, people do fall out with builders, and builders do cancel their insurance and go out of business. If the insurance for the building works is in the sole control of the builder then you as the project owner are exposed to the possibility of being uninsured.
If the building works cover is put in place by the builder and you have a dispute with him resulting in him walking off the job then the works that you have paid for and have been partially completed will be uninsured. Even if you instruct a new builder to complete the project, the new builder will only provide cover for the work they do, not the work which has already been carried out.
Therefore you will have a situation whereby part of the works, which you may have paid many thousands of pounds for, will be uninsured until project is completed. This will also be the case if you switch contractors part way through the build or use different contractors for different parts of the build.
The builders insurance only covers the works while they are actively engaged in the project. So if you have one contractor for the groundwork’s, another for the structure and another for the roofing or first and second fix, the work that has been completed will be uninsured until final completion when the property can be insured again in the domestic insurance market.
Another point to remember is that If the builder forgets to pay, or stops paying, his insurance premium you have no control over whether the works are insured or not.
The other reason for ensuring the works yourself is about being in control of the information which is provided to the insurance company. In one case that we are aware of the builders wife had been the director of an unconnected business which went into liquidation. The builders wife was also the company secretary of her husbands building business.
The builder failed to tell his insurance company about this and when a fire claim arose the insurers refused to pay for the damage to be repaired because the builder had not told them about his wife’s financial situation. As a result the builder ceased trading and the homeowner lost the money that they had paid for the work that had been destroyed in the fire.
Another reason that insuring the building project with the property is a good idea is because in the event of a claim there is no dispute as to which insurance policy picks up the cost of the damage. For example if there is an electrical fault that results in a fire. Because both the project and the property are insured by one insurer under one policy, only one policy can be liable to pay the cost of repairs.
The final reason for insuring the contract works also is because in the event of a claim this gives you control over how the claim is handled and where the proceeds of the policy are paid to. If the builder places policy then he can decide wether to make a claim (or not) if there is damage. In the event that the builder goes into liquidation any claim payment would be paid to the builders administrators not to you. The money would then be used to repay creditors and you would join the list of people to whom money is owed. You may receive nothing or very little. In any event this may take many months to resolve after the claim has been paid out.
Building project insurance is rated on the length of time that the project will take, the rebuilding value of the existing structure and the cost of the works. Insurers also interested in the type of work that is to take place and whether there will be any underpinning or strengthening of existing foundations. Insurers will want to know about any additional structural support that will be incorporated into the build for example where walls are removed and rsj supports are being inserted. If you are removing the roof, replacing windows, doors, knocking down external walls or using scaffolding insurers you should tell insurers about this.
Project insurance the length of time that the project tank stop in the project to meet longer all the cost of the work pieces you need to tell your insurers in about. There will be a charge for this.
They will also need to know about previous subsidence at the address and any history of flooding. Insurers will also want to know about any trees which are located close to the property. it’s a good idea to share plans to have drawn up and to provide details of the planning office and reference number so insurers and check out the exact plans which had been launched with your planning authority.
If your property is attached to another property or there are other properties in close proximity you should consider purchasing non-negligence insurance. This is sometimes called party wall insurance. Non-negligence insurance covers you against the damage which may result to your own, or surrounding properties, which was not considered likely by your architects and building engineers or your builder but occurs during the course of, or as a result of, carrying out the work. Damage for example that results from vibration occurring during the course of your works which weakens, and leads to the collapse of, your next door neighbours ceiling. Non negligence insurance is particularly important if you want to dig out a basement or are doing works that are very close to a neighbouring property.
The other cover to consider is construction guarantee instance. This covers the structure and work that has been done, normally for a period of between five and ten years. Similar to a new home NHBC warranty, construction guarantees provide a wide protection after the works are completed. So if your builder cuts corners and pins together the frame of your new home using 9mm bolts when 10mm should have been used and the structure twists out of shape and becomes unstable a year or two after the build then you have a policy that will pay to rectify the problem, if as is likely, the builder goes into liquidation, rather than putting the damage right. Construction guarantees can be arranged on a variety of different parts of a build, from foundations to rooves, basements to complete new builds and the extent of cover will depend on the work elements insured. They will normally require inspections to be carried out by the insurers engineers and this can replace building control inspections if carried out whilst the build is taking place. It is therefore better to arrange the guarantee at the point where the work begins as it is much cheaper to arrange for these surveys to take place during the build than after. Construction Guarantees that are arranged before the build begins will always be cheaper than those arrange when the work is complete. Often if you need to raise a mortgage or loan or are selling the property a lender will require a construction guarantee to be in place for at least ten years after completion.
A JCT Insurance contract is a sensible way of setting out your agreement with your builder. If you are using a minor works contract then class 5.4b should be used in most cases unless the existing structure is unsafe or an ancient monument.