This type of insurance is often referred to as “Builders All Risks” or “Contract Works” Insurance.
It is commonly taken out to insure the construction of new buildings or alterations/renovations to existing buildings, from start to completion, although the insurance can also cover civil engineering risks, and the installation and commissioning of new plant and machinery.
The insurance should be arranged for a period of time that will be sufficient to complete the construction work. For new residential dwellings and small commercial projects, the insurers normally charge a minimum premium for six months cover, so there no advantage to insuring for a shorter period than six months. Insurers will normally charge an additional premium should the cover need to be extended.
The insurance should be arranged without delay before any work is commenced at the site.
The sum insured should include all labour and materials to be incorporated into the project. The sum insured is normally shown as GST Exclusive, with the insurer paying GST in addition to the sum insured.
- Demolition/Removal of Debris
- Professional Fees
- Increased Construction Costs – During the Construction Period
- Increased Construction Costs – During the period of reinstatment
- Expediting Expenses
It is important that the Construction Insurance incorporates allowances for the above types of costs.
It is common for clients to delay arranging cover until the project is quite advanced or when they first need to draw down finance and their lender requests confirmation that insurance is in place.
This makes it difficult to obtain insurance, as most insurers will not get involved in insuring a construction project once it is advanced. If cover is offered, the insurer will charge the same premium that would have applied had the insurance been arranged prior to the work beginning, but the insurance will exclude any claim for loss or damage arising out of the portion of the project already completed.
- Not Insuring Their Own Labour Component
Often clients will build their own dwelling. It is important that when arranging the construction insurance, that you include an allowance for the reasonable cost of labour you are providing. Should loss or damage occur when the project is nearly completed, most clients would not like the idea of working for nothing for a further 3 – 4 months to reinstate the damaged building.
- Not Insuring Principal Supplied Materials
Often clients may be having a new dwelling built on a full contract basis by a builder, however they may arrange to supply certain fittings or appliances etc to be incorporated into the project, which are not included in the Contract Price. Any principal supplied materials needs to be separately specified and insured under the Construction Insurance.
- Not Arranging Alternative Insurance Once Completed
It is common for Construction Insurance policies to automatically cease as soon as the project is practically completed. It is therefore important that alternative insurance is arranged on the completed building as soon as it is practically complete, regardless of whether the Construction Insurance period of insurance has not yet expired.