Are you an owner builder? Find out what types of insurance are most useful.
No matter where you are in Australia, if you are intending to directly undertake, oversee or employ a licensed builder under your Owner Builder Permit, there are a number of different types of insurance that you might want to consider having in place. Types of cover recommended for owner builders include:
- Owner Builder Construction Insurance to cover the owner builder during the building process for losses they may face including malicious damage/vandalism, theft, fire damage, storm and wind/water damage.
- Public Liability Insurance to provide cover for personal injury and to third parties and property damage.
- Builders Warranty Insurance to cover defective or incomplete work e.g. if the builder becomes bankrupt.
This type of insurance cover offers much-needed protection if you decide to sell your owner-built or renovated house.
Who is actually recognised as an owner builder?
Each Australian state and territory has its own legislation on exactly who constitutes an owner builder, so it’s important to familiarise yourself with the relevant legislation where you live for full details. But as a general rule, an owner builder is someone who constructs or renovates a residential building on their own land, and who is not otherwise employed as a builder.
Owner builders basically act as the general contractor for their building project, hiring out work to subcontractors across a range of trades. They’re also responsible for the building schedule and assume any liability associated with the project, which means they assume all the responsibilities (and associated risks) that a registered builder would normally take on.
Owner builder will generally need to consider the following types of cover:
- Construction insurance
- Public liability insurance
- Builders warranty insurance
If you are an owner builder undertaking your own building project, you will no doubt be hiring some heavy machinery during the construction process. For this reason, you will need to take out Construction Insurance in case the equipment you are using is damaged, stolen or breaks down.
Construction Insurance covers the materials and equipment being used and stored on your building site and usually includes a Liability component to cover you if you injure others or damage third party property while operating your machinery.
As well as covering theft or vandalism of materials and equipment from your site, Construction Insurance policies also often cover electrical or mechanical breakdown of plant and equipment and will compensate you for repairs and any replacement hire costs you incur.
Construction insurance can provide financial protection against a wide range of potential risks faced by owner builders, including:
- Malicious damage or vandalism to the project or property
- Theft of goods or materials
- Fire damage
- Storm, wind and water damage
If one of the above insured events occurs, the most the insurer will pay is the full replacement cost for the insured project as shown on your policy schedule. Most insurers will also pay for a range of additional expenses when an insured event occurs, including:
- The removal of debris
- Demolition and disposal of the damaged building works or pre-existing structure
- Demolition and removal of undamaged parts of the project to allow the project to be reinstated or repaired
- Professional fees
Can it be used for multiple projects?
Construction Insurance policies are available for single as well as multiple projects and, given that owner builders expose themselves to the same risks as regular builders, it makes good sense to take out this form of insurance in conjunction with Builders Warranty Insurance.
If you’re an owner builder and a member of the public suffers an injury or property damage as a result of the work you are undertaking, an expensive public liability claim could be made against you. Renovations and building works mean that a property is prone to a range of hazards that would not normally be present. Public liability insurance covers third party injury and property damage caused by your negligence, offering crucial protection for your financial wellbeing.
Public liability insurance covers the following losses for owner builders:
- Damages and compensation resulting from third party injury or property damage
- The costs and expenses of your legal defence
- The claimant’s legal costs and expenses for any successful public liability claim against you
- Public liability for physical damage to or destruction of goods that are in your possession or control, and which arises as though the damage or destruction was damage to property
Cover is provided up to the limit of indemnity for public liability shown in your policy documents, with $5 million a commonly listed coverage limit.
What is Builders Warranty Insurance?
Builders Warranty Insurance is compulsory insurance everyone carrying out residential building work must obtain. In the case of a contract builder hired for a job, it covers the homeowner for a six year period against financial losses resulting from the builder failing to rectify or compensate for defective or incomplete work.
In the case of an owner builder, it covers anyone who purchases the home within that six year period. The period of cover is from the date of acquiring an occupancy permit or certificate of final inspection and is six years for structural defects and two years for non-structural defects.
However, the insurance cover only applies if the builder dies, disappears, becomes insolvent or bankrupt during construction or within the set time frames. So disputes regarding defects that aren’t covered would need to be resolved directly between the owner and the builder or between the owner builder and the purchaser.
Builders Warranty Insurance is only required if the residential building work exceeds a certain cost, an amount which varies by state. In SA and the ACT that amount is $12,000, in Victoria it is $16,000 and in NSW and WA it is $20,000.
How much does owner builder insurance cost?
The cost of owner builder insurance is not fixed and needs to be calculated on an individual basis. However, there are certain factors considered by insurers when determining an appropriate premium. These factors include:
- Type of building. The size and nature of your building will affect the costs of owner builder insurance. The materials used in construction also affect the price you pay.
- Location. Where your building is located can affect your premium. The specific nature of your building site may also affect the insurance cost.
- Quality of cover. You always get what you pay for. A really cheap insurance policy will often fail to cover you for everything you need when things go wrong.
- Extent of construction. Building a completely new structure will cost more in insurance terms than a partial renovation.
Will owner builder insurance cover voluntary workers?
if a voluntary worker on your project were to suffer an injury as a result of an accident while on the job, your owner builder insurance policy won’t provide and cover.
That’s why it may be worth considering taking out a voluntary workers insurance policy to cover the friends and relatives who offer their services as a favour to you. Voluntary workers insurance typically covers:
- Personal accident. Your policy will pay a lump sum benefit if a worker suffers accidental death or disability.
- Broken bones. Cover for accidental injuries is included.
- Ongoing benefit. Ongoing benefits may be available for workers who suffer temporary total disablement as the result of an accident.
- Medical expenses. The policy will cover resulting medical expenses that are not covered by Medicare.
- Cover for non-income earners. Domestic home help and student benefits may be offered for injured workers who are not in full-time employment.
While it’s not mandatory to take out owner builder insurance in Australia, this type of cover is definitely worth considering before you begin your building project. From fire and storm damage to theft and vandalism, damage to your project can occur through no fault of your own and could lead to significant expenses.
Similarly, a building site features a range of hazards and risks that would not normally be present at your property, and if they result in property damage or bodily injury to a third party, a public liability claim brought against you could lead to disastrous financial consequences.
Home and contents insurance policies do offer a range of additional benefits on top of the loss or damage cover they provide for your building and possessions. Depending on your policy, you may receive some cover for your home and contents while renovations or extensions are being undertaken.
- There may be limited cover for renovation works
However, there are a couple of key risks associated with relying on home and contents cover. First of all, most insurers will only offer a limited level of coverage for renovation works, usually up to a maximum of $50,000. However, not all policies offer this type of cover, and it’s a good idea to notify the insurer of your renovation project and obtain written confirmation of exactly what they will and won’t cover.
- Cover may be suspended while renovations are being carried out
Many insurers will suspend the home insurance and public liability cover while the renovations or extensions are taking place, especially if they’re above a certain cost limit or particularly complex. This could have a significant impact on the cover for the existing house against loss or damage caused by the building work, as well as on the public liability protection your policy provides.
- Cover may lapse if home is left vacant
Cover under many home and contents insurance policies will lapse if your home is left vacant for more than a certain period. And when you consider the increased risk of storm, wind and water damage while your property is being renovated, it’s clear just how important it is to ensure that you have adequate insurance cover in place.
Can I get cover if I have already started construction?
Unfortunately, many insurers will not be willing to provide owner builder insurance cover if you have already started your construction project. With this in mind, it’s recommended that you find the right owner builder insurance policy before starting work, especially if you are relying on financing from a lender to complete the project – without the proper insurance in place, you may have trouble finding a lender who will let you borrow the funds you need to finish the construction.
There are some insurers that may offer you cover for projects that have already commenced, but the cover will typically cost more than it would have if you had taken out a policy before starting work.
Other types of cover worth considering as an owner builder
Income Protection Insurance
Working on a construction site exposes you to a much higher risk of injury than you may normally have. If you suffered an injury and were unable to work, income protection insurance is designed to offer an ongoing benefit to replace your regular income. Most policies will replace up to 75 per cent of your pre-disability income, allowing you to continue to meet your ongoing expenses until you are fit enough to return to work and start earning an income again.
Personal Accident Insurance
Personal accident insurance offers crucial protection against the risks associated with being an owner builder and working on a construction site. This type of insurance offers lump sum benefits in the case of accidental death or disability, and weekly benefits if you’re totally or partially disabled for a temporary period as a result of an accident. This type of cover is usually reasonably affordable and helps protect your income and the progress of your construction project if you suffer an injury on the job.