Does your builder have insurance? Why builders risk insurance is so important

Building a new house, or making structural renovations to an existing house? Before even one nail is hammered into the ground, it’s important to check whether your builder is insured. 

Many people forget to check this, and end up in sticky situations when unforeseen circumstances arise. The truth is, many things can go wrong in a project, from fires, burglaries, to natural disasters. This is why it’s so important to be prepared, and protect yourself with builders risk insurance.

What is Builders Risk Insurance?

Builders Risk Insurance, also known as Contract works insurance is defined as indemnifying the policyholder(s) for sudden, unforeseen and unintended physical damage or loss to the contract works during the period of insurance. This typically excludes faulty workmanship but can be extended to include damage caused by natural hazards (such as earthquakes, and tsunamis).

It can cover the area in which the building is being constructed, the structure, or also the materials on site waiting to be installed or transported to the job site.

The builder's risk insurance policy will pay for damages up to the coverage limit. The limit must accurately reflect the total completed value of the structure (including all materials and labour costs, excluding land value). The construction budget is the best source for determining the appropriate limit of insurance.

So what’s covered?

A builders risk insurance covers sudden, unforeseen and unintentional physical loss or damage. This could include:

  • Fire

  • Theft & burglary

  • Accidental damage

  • Storm and flood

  • Subsidence

  • Natural hazards such as earthquake or tsunami (as an optional extension)

What’s not covered?

  • Damage caused by faulty workmanship or defective design and materials

  • Any existing structure (unless added separately)

  • Consequential loss

  • Contractor’s tools & equipment

  • Gradual damage


So before allowing your builder to place a peg on the ground, ensure they have builders risk insurance. If not, you can always organise cover yourself, either through your bank or insurance company.

For more housing tips, and recommendations, head to The Summit Homes blog.