“93% of homeowners doing extensive renovations works are not properly insured. If you do not tell your home insurer about works then you could invalidate your home insurance!”
When you undertake a project involving the structure and fabric of your property, as opposed to simple renovation without any alteration or addition, you are putting your biggest asset under increased risk. It only takes one misfortune to produce consequences which could jeopardise the value of the building. Increasingly, therefore insurance providers are demanding proof of the existence of a suitable policy. Building sites are full of potential misfortunes — all of which need to be insured against.
PLEASE NOTE: Building project insurance is a complex and specialist subject area. This blog and any guidance given within it are a brief explanation, covering some of the key concepts only. It is intended simply as a helpful guide to point out some of the issues you need to consider before commencing your project and should only be taken as such. Which policies will be needed will depend on the particular circumstances of your project. We recommend our clients take specialist advice, and you should include any specific requirements in the tender documents.
building project Insurance guidance for renovators and extenders
inform insurers of your proposals
Most homeowners assume that all buildings works will be covered under the builder's policies or their existing home buildings and contents insurance policies. Even if the builder has adequate insurance to cover their side of things, in most cases your policies will not. To make the situation worse, any structural work will often cancel existing buildings and contents policies as will the property being left vacant for more than 30 days.
“The general rule is that most household policies allow you to undertake simple refurbishment, but the insurance provider “must” be notified formally for more complicated building alteration work to the structure and fabric, that could put at risk the value of the property. You must inform them before works commence, to ensure your policies will not be made void.”
At the same time, you should give the insurance provider full details of the construction of the existing building and 'works' - what is proposed, it's cost, duration and risks, as well as if it is in an exposed location, or next to high risk premises.
The term 'works' denotes the additions and changes you make to the existing structure of your project.
Calculating the costs of the works is not straightforward. In projects we undertake, clients have normally had cost plans prepared by an independent Quantity Surveyor so they have a good idea on costs. However, builds always cost more than is expected, so it is advisable to give yourself some leeway. One option is to opt for a 'declaration basis' of insurance, taking out insurance based on the Quantity Surveyor’s figure, then declaring at the end what was actually spent, and paying the difference.
Also, things always take longer than planned, so add 20% more time to the anticipated timeframe expected at the outset.
All this is to guard against a provider attempting to reduce a claim on the basis of "non-disclosure" if they consider that an issue which was critical to them assessing the risk and coming to a decision was not disclosed.
It is also a good idea to give the existing property's up to date rebuild value, so should the worst happen, "under-insurance" cannot be claimed and any pay-out reduced by the percentage you are under-insured.
It is then down to the provider to assess the risks and confirm if they are prepared to extend the terms of the existing policy. If they do, this may also result in an increase in the premium.
building project Insurance options — Home Improvement and Renovation policies and Insurance
If your current provider will not cover you, then some specialist providers offer a home improvement policy/renovation insurance which will cover all normal risks, such as storm, flood, theft, subsidence and accidental damage, together with public and employers’ liability (see below).
The existing building is generally covered up to 110% of its value and the proposed works, up to 125% of their value or contract sum. The policy will be quoted according to the job, the risks and the costs of the proposed works.
Empty buildings insurance
If a building is left empty for more than 30 days, it is possible normal buildings and contents cover may be invalid and Empty Buildings insurance may be required.
Party Wall insurance
If you are making alterations to other people’s property as part of your project, it may well be worth taking out separate party wall insurance to bolster other cover. Example party wall works are works in a terrace and underpinning to construct a new basement. Rather than cover catastrophic events that may occur during construction, which should be dealt with by the contractor’s public liability, you cover for faults that may develop over time.
Standard project works contract insurance requirements
Disputes over contractor responsibilities, insurance cover, deadlines, delays and negligence, are all areas of conflict that frequently arise during building projects. To manage such conflicts the construction industry, including such bodies as the Joint Construction Tribunal (JCT), the Royal Insitute of British Architects (RIBA), NEC, FIDIC and others have developed suites of standard forms of project works contracts that identify these areas of conflict so that they are considered and agreed before work starts on site. A summary of major issues covered are:
- Who does what and when
- Liability
- Staged payments
- Insurance
- Delays
- The cost of variations to the original proposals
For relatively simple and straightforward projects a JCT Homeowner Contract makes little reference to insurance, other than asserting that both parties should make sure that they have the appropriate building project insurance in place. This means that you are responsible for insurance of the existing structure and the contractor will be responsible for insurance of the works until they are finished, along with liability to third parties and employees.
Some other project works contracts will also have specific clauses and requirements relating to building project insurance which most standard household insurances would struggle to give full cover for. Generally, within contracts used to covers works to the structure and fabric of a building, they will require the contract works and the existing building to be covered under one policy on an “all risks” basis in joint names of yourself and the contractor. The advantages of one encompassing policy are:
- Peace of mind - since you pay the premium, you have certainty and know that you are fully insured
- In the case of catastrophe, you do not have the hassle of claiming, backwards and forwards, from multiple insurance companies with inevitable extended timescale and delay to any payout.
For less straightforward projects the RIBA Domestic Contract 2014 might be suitable. It is more sophisticated than the JCT Homeowner Contract and is designed to be more flexible. Stepping up again, the JCT Minor Works Contract is an option for larger more complicated projects. Both these last two contracts give the option for insurance of existing structures and works to be taken out in the joint names of youtself and the contractor. This has two consequences:
- It makes sure that the existing structure and contract works are insured against all risks for their full reinstatement value
- Should a claim occur, the insurer is unable to subrogate against the contractor or avoid the policy. There is specific protection for you as the employer against a breach of a policy condition by the contractor, which means that your claim should always be met.
Content's insurance during the build
If you are not going to be living on site during the build and are going to store your possessions elsewhere, getting insurance for this should not be an issue. Likewise it may be possible to store items in parts of the building not affected by the works, but generally, insurers would ask to store items of high value elsewhere (such as works of art). Lastly, if you are going to be living on site in a part of the building not affected by the works, the provider should be informed, again to make sure that normal cover is not voided.
Insurance and Contractors
Before entering into a standard project works contract with a contractor, as part of the tender selection process, it is essential to establish the details of the builder’s insurance policies. This will confirm they are current and up to date, the limits of the cover, and that the sums insured are sufficient to cover any eventuality.
As a minimum, your chosen contractor, should always carry the following current insurances:
- Employers’ Liability: All those working on the site will be deemed, for insurance purposes, to be an ‘employee’ and, as such, the main contractor is responsible for their welfare, any injury, loss or death to them while on site
- Public Liability: Damage, loss or injury that is suffered by the public or third party
- Contract Works Insurance or Contractor’s All Risk (CAR): offers all risk cover for events such as flood and storm damage, fire, theft, vandalism. CAR is not mandatory so builders might have cut back on what is covered, to save on their premium, so it is important to check exactly what risks are insured and to what level.
BUILDING project insurance — CONVERSION INSURANCE OPTIONS
A conversion project (turning an existing building with an alternative use into residential) is treated similarly to a new build, but with many similar problems to a renovation project such as vacant buildings between purchase and getting the build underway, and the same problems can occur (see above).
Conversion insurance policies are available from specialist providers, and they follow similar lines to the home improvement policy, covering up to 110% of the value of the existing structure and 125% of the proposed contract sum, together with public liability and employers’ insurance. Again, each policy is priced according to the nature and scope and value of the works.
Determining the building project insurance needs of your project
The flow diagram is a simple checklist to assist you in determining the needs of your project.
BUILDING PROJECT INSURANCE OPTIONS for self builders
Self-build projects come in many different forms, from 100% DIY; main contractor or subcontractors with you as the contractor managing them; timber frame system; custom build; or a turnkey solution. Irrespective of what you choose, you will need building project insurance, and it is prudent to have one all encompassing Site Insurance Policy, which you are in control of, from a specialist supplier.
5 REASONS WHY YOU NEED COVER FOR YOURSELF AND YOUR PROJECT AS A SELF BUILDER
- As soon as you purchase a plot or building, as the owner, you are liable for any injuries to third parties and members of the public on your site, and you must have adequate Public Liability insurance by law.
- If you are responsible for any part of the construction works as opposed to using one main contractor for everything and you are using subcontractors or direct labour then technically, both in terms of insurance and under CDM 2015, you are the main contractor and employer, and are responsible for those working on the site. Even if the subcontractors have their own insurance, and they have an accident, they may see you as their best option for recompense, and if you have not got insurance, you will be exposed. You can cover for this with Employer's Liability insurance.
- Mortgage lenders will not normally release any money without proof of site insurance being in place.
- If you run into difficulties during the build, for example, vandalism or flooding, an All Risks Contract Works Insurance, to cover the new works, temporary works, existing structures and materials could mean a completed project rather than an abandoned site with disastrous financial implications.
- Other items to have covered would be, hired plant tools and equipment, your plant tools and equipment, caravans and site huts, personal possessions, personal accident and broken bones cover.
In summary, as a minimum new build self-build site insurance should provide one comprehensive cover for all aspects of your site. This should include:
- Public and Employer's Liability
- Building works and materials
- Plant tools and equipment
- Site huts and temporary buildings (including caravans)
- Existing structure (on conversions, renovations and extensions)
- Personal accident cover
- Legal expenses
Other building project insurance options to consider
Insurance Backed Warranties
If your project involves extensive structural changes to the existing structure or has substantial new buildings or extensions, paying for a structural warranty might be prudent.
Under the terms of a standard project works contract, you will be protected for either six or twelve years, depending if the contract is undertaken under seal or as a deed. However, if the contractor goes bust within this period, your protection will disappear with them.
In such circumstance, you might consider purchasing an insurance backed guarantee which will be there if your contractor is or not. If you want to sell the home within the guaranteed period, a future home buyer will be reassured by such cover. Even if your contractor is still in business, it can be difficult to assign contractual responsibility to a third party.
Normally the project will be audited periodically during the build by a representative of the insurance provider.
There are specialist warranty providers in the market and again, specialist advice should be sought before entering into any insurance.
Extensions and renovations, and self build new home building project insurance:
Extensions and renovations (will require the use of one of their member contractors):
Self-build new home insurance:
Life and/or injury cover
You may also want to consider additional life and/or injury cover.
Legal expenses
If any cover you choose does not include legal expenses, it is a good option to arrange this separately to cover such items as contract disputes or eviction of squatters.
Restrictive Covenants
Historic Restrictive Covenants can influence and control future use of land for the benefit of nearby landowners. They can also be worded so that the benefits pass to future owners. Before purchase, your solicitors should have checked your title deeds, passed over from the previous owners, or available from the Land Registry, which will confirm if there is indeed a valid restrictive covenant that could restrict or prevent you from developing your property.
If there is a covenant placed on your property, you should firstly talk to a specialist insurance professional to see whether indemnity insurance is available to provide you with protection if a beneficiary tries to enforce the covenant. Do not communicate with the beneficiary before contacting an insurer.
The specialist insurer will assess the covenant and its enforceability, the probability of the beneficiaries making a claim and the amount of possible financial damages then, according to the risk, set a one-off premium payment.
WHEN THE BUILDING PROJECT WORKS ARE OVER
Remember your contents and buildings policies will need updating on completion to reflect the extra upgraded space and, rebuild value.
building project Insurance Costs
The majority of self-build insurance providers charge a single premium based on a sliding scale of the rebuilding costs.
For conversions and renovations, a survey may be required for assessment. Personal contents will not be covered by a self-build policy, although where a self-build policy is converted to a standard household policy upon completion of the project, it can be included in the normal way.
This blog is intended simply as a helpful guide. It should be taken as such and not be relied upon without specialist advice. Harvey Norman Architects would always recommend that you take specialist professional insurance advice in respect of your project arrangements.
CONSIDERING A CONVERSION, EXTENSION OR NEW BUILD? BOOK YOUR KICKSTART CONSULTATION TODAY.
This consultation will help you get started right with expert advice early on in the project — quickly get to grips with design, costs and planning, and minimise the likelihood of stress, time wasting and escalating costs. We mainly work with clients in Cambridge, St Albans, and throughout East Anglia and London.