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? Here is some information that will give you the confidence to make the right decisions about the insurance cover for your renovation project.
How much does building Project Insurance cost?
To insure a building project properly you 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 a storm, flood, wind or rain.
Will my household policy cover my building works?
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.
What does a Building Project Insurance policy cover?
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 or contractors that you use are insured for public and employers liability insurance. You should also make sure that 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.
Will my Builders Insurance Policy cover the works?
Many customers think that it is preferable to rely on the 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 be confident that your builder 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 or stop paying for their insurance and they go out of business, often at the most inconvenient point in your building project. If the insurance for the building works is in the sole control of the builder then the works that you have paid for will be uninsured possibly until the end of the project.
What happens if I fall out with my builder?
If the building works cover is put in place by the builder and you have a dispute which results in them 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 the 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.
What happens if I am using several different contractors?
The builder’s 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.
What happens if my Builder doesn’t pay for his insurance cover?
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.
What happens if my Contractors Insurance isn’t valid?
The other reason for insuring 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 builder’s wife had been the director of an unconnected business which went into liquidation. The builder’s wife was also the company secretary of her husband’s 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.
If there’s a claim, which insurance policy pays?
Another reason why insuring the building project with the property is a good idea is that 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.
Who can claim and who gets the money?
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 whether 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 builder’s 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.
How are Building Project Insurance premiums calculated?
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 are also interested in the type of work that is to take place and whether there will be any underpinning or strengthening of existing foundations.
Your insurer will want to know about any additional structural support that will be incorporated into the build for example where supporting 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.
How long will Building Project Insurance last?
A renovation or building project insurance policy is set up to cover the full period of the works or building contract. If the project is going to overrun or the total cost increases you will need to tell your insurers about this and extend the policy. There will be a charge for this.
What else should I tell my Insurers about my renovation project?
Your insurers will also need to know about previous subsidence at the address where the work is to be undertaken and any history of flooding in the area. They 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.
What other covers might I need?
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 or, it may be referred to by the JCT contract clause which specifies the cover:- 21.2.1 JCT 19(2)(a), JCT 6.2.4 & JCT 6.5.1.
What is Non-negligence/Party Wall Insurance?
Non-negligence/Party Wall insurance covers you against the damage which may result to your own, or surrounding properties, but occurs during the course of, or as a result of, carrying out the work. This type of policy only covers damage that wouldn’t be considered to be a likely consequence of the work you are doing.
A policy would cover 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, but only if the ceiling was considered to in a stable condition and not at risk of collapse prior to the works starting.
Why should I buy Party Wall/Non-Negligence Insurance?
Non-negligence insurance is particularly important if you want to dig out a basement are removing supporting walls, doing work to the foundations, including underpinning and piling or are doing works that are very close to a neighbouring property or in an area close to water or watercourse. You should also think about taking out Non-negligence cover if there are trees close by that may be affected by the build or the area has a history of subsidence, heave or landslip.
Will Party Wall Insurance cover the cost of the Party Wall Award?
In a word “no”. When you undertake a major building project it is inevitable that other properties in the vicinity will be damaged. The Party Wall Award will encompass the cost of making good all of the damage to neighbouring properties caused by the works, whether it was foreseeable or not. A Party Wall policy will only cover the parts of an award which relate to the cost of repairing damage caused by the works, which could not be anticipated. Party Wall Insurance does not cover the cost of negotiating, formulating or agreeing on the Party Wall Award.
Can I buy Legal Expenses Cover to protect me against Neighbour disputes?
No. Building projects are often fraught with controversy and as a result, a dispute with neighbours can occur with frightening ease. Such disputes are hugely costly and are uninsurable.
What extra things do I need to think about if I want Party Wall Cover?
A survey report should be prepared before the work starts to record the condition of the properties likely to be affected by the work. This will normally be carried out as part of a party wall agreement.
When should I buy a Party Wall/Non-Negligence policy and how long will cover last?
You should buy a non-negligence/party wall policy when you start your building project. The cover will last for the length of the build, so you may need to extend the policy (at an extra premium) if the building contract overruns. Because things can go wrong after the building contracts ends a non negligence policy will normally have a maintenance period of up to 12 months at the end of the project which extend the cover to include damage discovered after the build finishes.
What is a Construction Guarantee/Structural Warranty?
A Structural Warranty is an insurance policy designed to protect against structural defects in new buildings, normally for a period of up to10 years after completion. A structural warranty will provide protection against structural defects in either workmanship or the risk of failure with construction materials.
Similar to a new home NHBC warranty, construction guarantees and structural warranties provide 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.
Why else should I buy a Construction Guarantee/Structural Warranty?
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.
Without an approved warranty in place, mortgage lenders may not lend money against a property. This could delay the sale of your property or prevent you from obtaining a remortgage. It is cheaper to buy a warranty before you start building your project as the provider will be able to inspect the build as it takes place, rather than relying on all the work being done correctly when it has been completed.
Can a warranty or guarantee be arranged on specific parts of my project?
Construction guarantees can be arranged on the whole project or to protect a specific element of the work – from foundations to rooves, basements to complete new builds. The extent and cost of cover will depend on the work elements insured. A construction warranty will normally require inspections to be carried out by the insurer’s engineers and this may replace building control inspections if carried out whilst the build is taking place.
When should I buy a Building Warranty?
Construction Guarantees that are arranged before the build begins will always be cheaper than those arranged once the work is complete. This is because it is much cheaper to arrange for the necessary surveys to take place during the build than after. Also, insurers engineers who oversee a project will be able to see the parts of the build which are later obstructed from view when the build is completed
What Insuring clause should I choose?
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.