What Does Insurance Cover

A contract works policy covers sudden and accidental physical loss or damage that occurs to the property insured during the construction period. Contract works insurance cover can be arranged on a project-specific or annual basis. Annual policies automatically cover all of the contracts which fall within agreed parameters, up to a specified value. Projects that exceed this value will need to be insured separately.

The policy should cover the full replacement value i.e. the cost of rebuilding the whole project. Principal supplied materials should be insured too. Very often the principal will supply their own goods or materials e.g. the whiteware. These can be included in the policy as long as their value is included in the sum insured.

There are also ‘allowances’ which are required by contract, such as professional fees, demolition and removal of debris and increased costs. These are limited to either a percentage of the contract value, such as 5%, or a fixed amount.

A contract works policy also provides additional allowances such as:

  • Transit – provides cover for materials to be incorporated into the works during transit to and from the site.
  • Off-site storage – provides cover for materials to be incorporated into the works when they are stored off-site.

When does insurance cover end?

Cover will automatically end on the earlier of:

  • When any part of the works is occupied, taken over or taken into use by the owner
  • On practical completion of the works
  • On the expiry date shown in the policy

It’s preferable to err on the side of caution when choosing an end date, as construction work often overruns. In that case, arranging an extension to the policy can be more costly than if you were to simply overestimate the construction period when taking out the policy initially. Worse still, if you forget to extend the policy you’ll have no cover at all, at the very time the build value (and potentially the risk of loss) is at its greatest.

Insurance Cover

The cover does continue through the defects liability period, sometimes called the maintenance period, specified in the policy. This covers loss or damage discovered within this period that happened during construction, or for physical loss or damage arising while fixing defects.

What’s not covered by contract works insurance cover?

It’s important to be aware of what’s not covered by the policy. Although they vary by insurer, these are some of the common exclusions:

  • Construction equipment and tools
  • Consequential loss, loss due to delay, penalties, liquidated damages
  • Existing property – unless it has been specifically agreed to be included in the cover
  • Faulty design, workmanship or materials
  • Your builder failing to complete the work (for this you need an independent building guarantee)

Get an estimate

You can also get an instant quote and apply for cover online.

10-year building guarantees

In addition to construction-related losses, owners also face the risk of their builder going bust and being unable to finish (or in some cases even start) the build. To protect you from this, and to cover the cost if defects arise after completion, an independently insured 10-year guarantee is required. Read more about these here.

Editorial supplied by Builtin Insurance – Contact us here