The ins and outs of construction insurance: Protect yourself from the risks with the right policy.
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Construction insurance (also known as construction all risk insurance, builders insurance or construction works insurance) provides cover for various construction-related risks under a single policy including:
- Injuries to people on the site
- Equipment damage
- Damages to the project
- Loss of profits
A policy can be tailored to suit specific projects and to protect all parties involved including the project owner, contractors and suppliers. It can also be tailored to single projects or annual contracts.
Get a quote for construction insurance
Depending on the nature of your site (and the types of risks involved) the quoting process may involve a lengthy amount of questions. This ensures you're quoted on the best coverage package for your project.
Speak to a broker or start your quote online here.
What is construction insurance?
Construction risk insurance is a type of financial protection that can protect you from the various risks of the industry, including protection for building works against loss or damage, legal liability help if someone tries to sue you and more. With a construction insurance policy, you can get cover for:
- Legal liability
- Loss or damage due to theft, storms, water damage and more
- Items the owner supplies to be included in the construction project
- Tools, equipment, plant and machinery against on-site and off-site losses
- Professional fees when repairing insured damage
- Debris removal costs
- Damage mitigation expenses
- Loss of profits
- Loss of rental
- Delay in start-up
Per project vs annual cover
Construction risk insurance can be arranged on a per-project basis or taken out as an annual policy to cover all projects undertaken across a 12-month period. It covers the builder, the property owner, contractors and subcontractors against any loss, but can also be tailored to include other professionals such as project managers and architects.
Is defective work covered?
While no cover is available for damage caused by defective works, it's important to check how your policy will cover you when works are completed correctly but damage is caused by defective materials, workmanship or design in other parts of the construction project.Back to top
What types of construction insurance are there?
Construction insurance encompasses a broad range of different liabilities and finding the right level of cover for your business can be a confusing task. To make sure you're not paying for benefits that you don't need, an insurance broker may be the best way to help tailor a policy to your needs, so take the time to seek expert advice.
To give you an idea of what you can get, the following types of cover are often available with a construction insurance policy:
- Public liability. This can cover you for public liability claims made against you including legal costs and expenses for claims made by third parties, claims for physical damage to or destruction of goods in your control as well as claims for injuries to employees or third parties on the construction site.
- Property damage. This provides cover for the construction site and pre-existing structures against unforeseen physical loss or damage, including by fire, wind, theft and more.
- Equipment insurance. This provides cover for loss or damage to construction equipment found on building sites, which can include everything from handheld power tools to massive earthmoving equipment and even cranes. Other items covered include forklifts, pavers, concrete equipment, lifting equipment, harvesting machines and farm machinery.
- Employment practices liability insurance. This provides cover for alleged discrimination, unfair dismissal, sexual or workplace harassment, wrongful dismissal or termination of employment. It can also cover you for costs you may be required to pay including damages, legal fees and any back pay.
- Decennial liability insurance. This is designed to provide protection against any liability for major damage to a building that can occur or become apparent in the decade following its completion. It can cover the cost of damages and compensation that may need to be paid to the building owner.
- Erection all risks insurance. This is designed to protect you against the risk of any loss suffered in relation to the erection and installation of machinery, plant and steel structures, including physical damage and liability cover.
- Delay in start-up insurance. Similar to business interruption, this can cover the loss of the anticipated income in the event that a construction project is delayed because of extreme weather and other events that are out of your control.
Other types of insurance benefits you might consider for construction
As there are a range of different construction projects, there are several more niche types of cover you can get. Some of these include:
- Property and inland marine insurance. Property and inland marine insurance covers a range of aspects of construction. It provides cover for the physical loss of or damage to goods and merchandise while in transit or in storage, while also covering damage to vessels and their machinery anywhere around the globe. Liability cover is also available.
- Contractors pollution liability. Pollution is a real risk for contractors working on construction sites. Spillage of fuel oil, contaminated soil disposal, the leaking of chemicals or toxic gases, broken pipelines and a range of other factors can cause huge problems. Contractors pollution liability provides protection against a huge variety of pollution risks commonly associated with construction projects.
- Contractors protective professional indemnity. This type of cover offers professional liability insurance that can be vital for contractors. It protects contractors against losses arising from the neglectful performance of professional services for which the contractor is liable, no matter whether those services were self-performed or subcontracted to someone else. This cover is especially well suited for mid-sized and large construction contractors.
- Owners protective professional indemnity. If you're the owner of a construction project, owners protective professional indemnity cover helps protect you against losses resulting from the negligence of an architect or engineer. This cover is designed to supplement rather than replace the architect and engineer's own insurance cover, ensuring a high level of cover is in place.
- Architects and engineers liability cover. It's also essential for design professionals to take out their own insurance cover for protection. Architects and engineers liability cover protects architects and engineers against any loss or liability resulting from errors and omissions in their work. Faulty construction work associated with projects the design professionals work on is usually excluded from this type of cover.
What won't construction insurance usually cover?
As with any other form of insurance, a range of exclusions will apply to your construction insurance policy. These exclusions can differ from one insurance provider to the next but will commonly include:
- The total or partial destruction, erasure or corruption of electronic data.
- The use of the Internet or email that results in a claim.
- Acts of war or terrorism, invasion, or any claims relating to nuclear weapons material.
- Any insolvency or bankruptcy of the company must be reported to the insurer. The insurer reserves the right to cancel the policy or alter the terms.
- Any liability arising out of or in anyway connected with personal injury, property damage or other losses connected to asbestos of any form.
- Claims related to welding or heating where the insured has failed to comply with laws or safety standards.
- The demolition of buildings or structures.
- Claims relating to strikes, civil unrest or wilful damage.
- Excavation work or the removal or weakening of supports.
- Any liability arising out of ownership, use, maintenance, possession or operation on any watercraft or aircraft.
- The loss of or damage to items such as bills, computer software or cash.
- Claims relating to actions or incidents occurring outside Australia.
- Claims arising from dishonest, fraudulent or criminal conduct.
How much does construction insurance cost?
Premiums can be affected by a wide range of factors including:
- The sum insured. The higher the level of cover you have in place, the more you will have to pay in premiums.
- Any additional options you select. Adding additional cover to your policy, for example to cover architect's fees when repairing insured damage, will increase the cost of premiums.
- The number of people covered. The number of contractors and subcontractors included in the construction project will influence the cost of cover.
- The work you do. If insurance is taken out on a per-project basis, the size and scope of the construction works will be taken into account. If you take out an annual policy, the insurer will consider the size and scope of the projects you take on and how many you would be expected to complete in a calendar year.
Do I need construction insurance if I'm an owner builder?
Construction insurance is also worth considering if you are an owner builder carrying out building works on your own property. While generally not compulsory, it can ensure you do not face severe financial consequences in the event that something goes wrong during the building process and you face additional costs for damage or liability from other parties. Owner builder construction insurance is often available as a package and can provide cover for:
- Damage or loss of building materials. These are insured against damage from fire, storms, vandalism and also from theft. You can also take out cover for these materials while they are in transit to the construction site or while they are being stored somewhere off-site.
- Damage to existing structures. You'll definitely need cover for any existing structures that are not part of your planned building project. For example, if you're building an extension onto your house, chances are that your existing house insurance policy will either be terminated or feature a range of exclusions. Owner builder insurance makes sure you are protected against damage caused to existing structures.
- Damage caused by vibration. Make sure your policy doesn't exclude this sort of damage, as vibration from the work you are doing can cause damage to a neighbour's property and result in significant costs.
- Public liability claims. This can cover your vacant block of land prior to construction beginning, as well as the building site once construction starts. If a worker is injured on-site or you damage someone else's property, with this type of cover in place you'll be protected.
- Workers compensation claims. This ensures you are covered against any legal action taken by contractors or employees.
There are a number of steps you can take and factors you can consider when comparing builders risk insurance policies. These include:
- Determine how long your construction process will take. As builders risk insurance policies will cover you for the duration of building from start to finish, estimate how long the building process will take and factor this in when calculating how much each policy will cost.
- Make sure all the important people are covered. Take the time to sit down and work out which individuals and professionals will be working on the project. Will there be architects, engineers, tradesman, contractors and subcontractors? Construction insurance covers the property owner, the general contractor and some subcontractors, so compare the available policies to make sure you find cover for all the necessary people.
- Work out a budget. Calculate how much your project is going to cost, including everything from materials to labour. This will then help you determine exactly how much cover you actually need.
- Specified peril vs all risk policies. Specified peril policies only provide coverage for specific incidents that occur to structures listed on your insurance policy. All risk policies provide coverage for a broader range of events and incidences. Which one is right for you?
- What additional coverage do you need? Examine the range of insurance options available to determine whether or not you might need to increase your cover. Would a professional indemnity policy be a good idea?
- Consider your options for the future. When comparing builders insurance policies, consider whether each provider will make it easy for you to convert your coverage to a permanent property insurance policy once the job is finished. This can help you save money in the long run.
- Compare exclusions. As is always the case when buying insurance, it makes good sense to read the policy documents closely and examine what is excluded from your policy. This can prevent any nasty surprises down the line and ensures you cover that you understand.
- Seek expert advice. Shopping for construction risk insurance can be a daunting and sometimes confusing task. In order to ensure you get the right level of cover put in place, speak to an insurance broker to get professional advice tailored to your specific needs.
How do I make a claim?
If you need to make a claim on your construction risk insurance policy, check with your insurer for details on the exact claims procedure you must follow. As a general rule you will need to:
- Contact your insurer. Get in touch with your insurance provider as soon as possible to notify it of any loss, damage, claim, writ, summons or impending prosecution.
- Prevent loss. It's vital that you take all reasonable steps to minimise your loss, damage or liability, and to prevent any further loss, damage or liability from occurring.
- Provide full details. You will need to provide full details of your claim to the insurer within a certain time frame, usually a maximum of 30 days.
- Gather evidence. You will need to take all steps possible to preserve anything which may be useful evidence to support your claim.
- Inform the police. If any property has been lost, stolen or maliciously damaged, inform the police as soon as possible. Make sure to get a written copy of the police report to support your claim.
- Recover and retain. Take reasonable steps to recover any lost or stolen property and hold on to any damaged property so that it can be inspected and assessed by the insurer.
- Complete your claim. You must supply the full details of your claim along with supporting evidence to the insurer within a reasonable time frame. It's also important that you do not make any admission, offer or promise of payment without your insurer's consent.
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