Whether you are building a new custom home or renovating an existing one, it’s crucial to understand the importance of builders warranty insurance. Builders Warranty Insurance protects the homeowner through the construction period and for 5 years after completion against any incomplete or defective building works. Homeowners can only claim on this insurance if the builder is no longer trading, insolvent or in administration. The policy extends to subsequent homeowners.
If builders warranty insurance is something that you have heard of, but you are unsure exactly what it is, and what it covers, this explainer below will provide you with all the information you need to know.
What is Builders Warranty Insurance?
Builders Warranty Insurance, often known in South Australia as Building Indemnity Insurance, is a mandatory insurance policy that protects homeowners from financial loss if their builder is unable to rectify defects or complete the construction due to insolvency, death, or disappearance. This insurance is a legal requirement for all residential building work valued at $12,000 or more, providing vital security for your investment.
Why Do You Need Builders Warranty Insurance?
Building Indemnity Insurance is essential in South Australia. It ensures that homeowners are not left financially vulnerable if their builder cannot fulfil their obligations. Construction projects are significant investments, and while many builders are reliable and skilled, unforeseen circumstances can arise. This insurance acts as a safety net, covering the cost of completing the work or fixing defects if your builder is unable to do so.
Who Organises Builders Warranty Insurance – the builder or the client?
It is the builder’s responsibility to arrange Building Indemnity Insurance before starting any construction work. The builder must provide the homeowner with a copy of the insurance certificate as part of the contract process. This document is crucial because it guarantees that the builder is compliant with South Australian law and that the homeowner is protected.
As a homeowner, it’s important to ensure that this insurance is in place before any work begins. Without it, you could be exposed to significant financial risks if something goes wrong during or after the construction process.
How Long Does Builders Warranty Insurance Cover You For and What Does It Cover?
In South Australia, Building Indemnity Insurance covers you for up to five years after the completion of the construction work. This coverage includes:
- Structural defects: Issues with the foundation, walls, roof, and other major structural elements.
- Non-structural defects: Problems with plumbing, electrical work, and other finishes.
- Incomplete work: If the builder cannot complete the project due to insolvency, death, or disappearance.
It’s important to understand that this insurance is a last resort, meaning it only comes into play if the builder is no longer trading, under administration or is insolvent.
How Much Does Builders Warranty Insurance Cost?
The cost of Building Indemnity Insurance typically ranges from 0.5% to 1.5% of the total contract value. The exact premium can vary based on the size and scope of the project, as well as the insurance provider. For example, if your building project is valued at $200,000, the insurance premium could range from $1,000 to $3,000.
This cost is usually included in the overall contract price and is paid by the homeowner as part of the building agreement. It’s essential for homeowners to confirm that this cost is factored into their contract to avoid any unexpected expenses.
Building Indemnity Insurance is a crucial aspect of any residential construction project. It provides homeowners with protection and peace of mind, ensuring that their investment is secure against potential risks. While it’s the builder’s responsibility to arrange this insurance, homeowners should always verify that it is in place before work commences.
By understanding the importance and specifics of Building Indemnity Insurance, you can confidently proceed with your construction or renovation project, knowing that you’re protected against unforeseen challenges.
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