1/ Material Damage
This is damage to the building whilst under construction. The most common claims come from cyclone, storm , fire, flood and theft of building materials.
2/ Public Liability
This is to protect the owner builder from claims made against them by third parties for damage to property and injury they suffer.
As with all insurances you should consult the relevant Product Disclosure Statement to ascertain the extent of the cover and more importantly what is not covered.
When should Insurance be arranged?
BEFORE YOU COMMENCE BUILDING!!! The biggest Common Mistake Owner Builders make in relation to this insurance is to wait until they have partly completed or commenced construction before arranging this insurance. Owner builders often feel that they will save insurance premium by only insuring the dwelling for a shorter period of time than it takes to build the dwelling. This can be incorrect particularly where the term of the cover is less than 12 months. Additionally some insurers will not cover Contract Works policies once the building has commenced due to strict underwriting guidelines. If cover is difficult to arrange or cannot be arranged because you have already commenced building, this can also have ramifications where finance is involved. Financiers and banks usually as part of their normal lending practice, request a copy of the Contract Works Insurance policy before advancing funds so if this is not in place, the availability of funds could be jeopardised.
How long should I have the policy go for?
As this is done on a Single One – Off Contract works insurance policy and no renewal is issued by the insurer, it is best to make the policy run initially for as long as you think it will take to build your home as some insurers are reluctant to extend the policy if the cover is required for a greater time than originally applied for. For instance if your estimate of the build time is 18 months, then make the policy run for 18 months as normally insurers do not offer renewal for one-off Contract Works cover. The only exception we would recommend for this is that if it will take you less than 12 months to build the home then make the initial period of insurance run for 12 months as there will be no additional premium to pay.
What if I occupy the dwelling before the home is finished and the Contract Works Insurance has time to run?It is most important to understand that once you occupy the dwelling (even if it is not completed) the Contract Works Insurance and the Public Liability associated with the policy will not cover you and you will need to arrange Home Insurance to insure your home. This is another big mistake Owner Builders make – they assume that because they have Contract Works insurance in place it will still cover until the expiry date when in fact this is not the case.
Calculating the sum insured
This is a common question asked by Owner Builders as the value of the construction varies over the build and is obviously is much less at the beginning than at the end. Our advice for this is to have the sum insured represent the replacement value of the finished home and the sum insured should reflect what it would cost a builder to rebuild and/or rectify the damage. This will make sure you are not penalised by underinsurance clauses that exist in Contract Works policies i.e.as an example of this is if you insure a home under construction for $150k and the replacement value is $300k then you will only receive 50% of any claim as you are insured for only half the replacement value. We have also found that when a loss and particularly a major loss occurs, owner builders are happy for a registered builder who is appointed by the insurance company to finish the build and repair the damage. This does not preclude the owner builder completing the work themselves , however, as the insurer is paying for the repairs they have the discretion on who they will appoint to do the work. If there is a saving in having the owner builder do the work for the insurer then they may well appoint the owner builder but like a registered builder they would have to quote for the work that is required. Also consider it should take the registered builder less time to complete the work.
What excesses apply in the event of a claim?
This can vary from insurer to insurer but generally we have found the standard excesses are $1,000 per claim for Material Damage and Public Liability. The exceptions to this are Named Cyclone (Tradesure is $2,500) and Workers to Worker claims under the Public Liability section which is also $2500 at Tradesure.
Is there anything I need to know if I engage Subcontractors?
The most important and often overlooked aspect of this is that all subcontractors should have their own Public Liability insurance and show evidence to the owner builder of this by way of a certificate of currency before they commence work. This is a principal adopted by registered builders and it applies no less to owner builders. We strongly recommend you obtain this in writing and not just receive the information verbally. If they have employees of their own they should also have Workers Compensation in place.
All subcontractors should be suitably qualified, licensed and operating as required by law.
What additional Items are insured?It can depend on what you select ( and they must be selected as not all are automatically included) and some of these additional items do not add to the cost so we recommend they be included;
Contract Value Increase – can cover up to 15% of the value
Removal of Debris – usually up to 10% of the sum insured
Professional Fees – usually up 15% of the sum insured for draughtsman, architects, surveyors
Fire Extinguishment Costs – usually $10,000
Materials in Transit – usually $10,000
Are my tools or any of my equipment insured under the Contract Works policy?Any tools you use or plant and equipment you own can be insured. Sometimes these are best covered under the Contract Works Insurance , however, this is not always the case as it can depend on the tools and equipment and where you require them insured. We recommend speaking to an insurance professional to ascertain your insurance needs in relation to these items. Subcontractors tools and equipment are the responsibility of the subcontractor and they should have their own insurance for these items.
What if I employ someone to assist?
If you employ someone to assist you then you should arrange Workers Compensation (Work Cover) insurance for the employee. Even if the worker has their own ABN they could still be deemed to be an employee under current legislation and you would need to check with the Workers Compensation in your state to clarify this.
What are some of the occurrences excluded by Contract Works insurance owner builders should be aware of?
Once again it can vary from insurer to insurer but here are a few examples;
No cover once the building is occupied
No cover for any defect or design error including incorrect plans or specifications.
Damage that occurs over time such as corrosion, or deterioration due to climate conditions
Damage caused by vermin, termites or insects