Do you know what Home Warranty Insurance is and why it’s so important? Not many homeowners do, which can be extremely dangerous and can put your entire project at risk.
All builders need to have their own insurance, but not knowing exactly what it covers, and whether you’re covered in a worse case scenario, will leave you in a very precarious position.
A professional builder should have at least two types of insurance as a bare minimum. Public Liability Insurance and Contract Works Insurance. Public Liability Insurance is designed to protect the builder against claims resulting from a loss to a third party (i.e the public) that occurs on-site. Contract Works Insurance protects the builder and their assets should any loss, damage or injury occur whilst undertaking a construction project. Which is great… for the builder!
So where’s your protection should anything go wrong? This is where Home Warranty Insurance comes in. It’s not an insurance policy for the builder, it’s an insurance policy for you! If your project is valued at $12,000 or more AND needs council approval (it has to tick BOTH boxes), then your builder is legally required to apply for Home Warranty Insurance on your behalf, so it should ring alarm bells if the builder you’re working with isn’t providing this.
You may be working with a builder who has told you that they’re insured, which means you’re covered, right? Wrong! Home Warranty Insurance isn’t a policy that is taken out as a once off to cover the builders projects. It is a policy that is applied for on a project by project basis and a certificate is given to both the council and you before any construction work is allowed to commence. So unless you’re being issued a certificate of currency that specifies the project cost and length of cover, you’re not protected!
So, What Exactly Does Home Warranty Insurance cover?
Home Warranty Insurance, also known as Building Indemnity Insurance, covers you if there is any defect work, warranty work or anything that goes wrong that the builder cannot fix themselves for any reason, such as refusal to return to site, bankruptcy or death.
If your builder went bankrupt mid way through your project, you’d be left with one hell of a mess! With Home Warranty Insurance your policy will provide a nominal amount (up to $80k) to be able to pay another builder to finish the work. Or at the end of the job if there are defects everywhere that the builder is refusing to fix, the policy will cover the cost of those defects.
Without Home Warranty Insurance you’d either be forced to cough up way more than you ever planned or be left with half finished or defected work due to not being able to afford to fix it. These are only two examples of what could go wrong in the short term, can you imagine the damage it would do in the long term?!
When Are You Covered From?
Your Home Warranty Insurance will cover you from the very beginning of the project up until 5 years post build. Meaning that without Home Warranty Insurance, if you were to renovate and then sell, you’d be selling your home without any warranty. Many potential buyers will want to know, especially if recent works have been done, that the work was done professionally and is under warranty. Not having the warranty could severely devalue your home!
Who Can Apply?
This isn’t an insurance that anyone can call up and purchase for themselves, if you don’t have a builders license and you don’t have eligibility then you won’t be able to even apply for it. South Australia is unique in some regard because we are the only state where you are able to be an owner builder without a builders license. This doesn’t, however, remove the requirement for Home Warranty Insurance. So how do you apply?
As an owner builder you will be entering into ‘small contracts’ with each trade, which means every single contractor will need to provide their own Home Warranty Insurance cover for their own scope of work. And this rarely happens because
1. Most subcontractors don’t even know they need to provide this insurance and
2. You, as the owner builder, will forget to administer and follow up on all the individual policies that should be in place.
This means you’re risking your entire project if things were to go wrong, relying heavily on the word of your subcontractors to perform the work correctly and come back and fix any defects if they arise (not to mention the liability you’re taking if the sub-trade goes bankrupt).
And then there’s the risk you’re putting yourself under if you sell your home without warranty on your renovations…
Hire a Professional Builder
The takeaway from this is don’t try to manage your own build, especially on a big scale. Your home is simply too big of a risk to go uninsured. With many trades not even being eligible for Home Warranty Insurance because they haven’t even been through the eligibility process; none of the work you get done will be covered under insurance, and if you go to sell the home or there are defects you’ll have no leg to stand on.
And it’s actually a cheaper insurance policy through a professional builder! Home warranty insurance policy pricing starts around $900, and if you had to get this policy from 15 separate trades, this adds up to tens of thousands of dollars to insure the works. A professional builder can cover the entire project for a fraction of that cost, so you can see it makes a lot of sense to work with a professional builder!
It doesn’t matter if you are building your first home or renovating for the seventh time…
Designing your dream home can be very overwhelming and not all information out there is clear, which is why we’ve put together a free and simple guide. The 6 Essential Things You Must Do For A Successful Home Renovation. Download your FREE guide here to discover more.
