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Home Warranty Insurance

Home Warranty Insurance MazeThe whole issue of Home Warranty Insurance boils down to one question: How financially safe are you as an Owner Builder?

Here are some relevant points to help answer that question:

1. Different states use different Home Warranty programs. Choice Magazine refers to the programs run in NSW and Victoria as “Junk Insurance”.

2. By and large (and you need to research this relative to your state guidelines) you do not need to purchase home warranty insurance as an owner builder. You are the principle contractor and therefore the buck stops with you. However in some states, if you wish to sell your owner built home within a specified time frame (usually 5-7 years) then you need to purchase a home warranty insurance policy to cover the house for the remainder of the period of cover.

If you’d like some guidance with your insurance obligations as an owner builder  simply pick up the phone and give us a call. We’d be delighted to help you.

And here’s some more info on the subject of risk management and what Builders Home Warranty Insurance is.

If you were to look for a good example of how Builders Home Warranty Insurance works then you should look at the situation in Queensland and how the BSA manages the process. The opposite of that is in NSW and Victoria where it is regarded by those in the industry as a “basket case”.

In reality Home Warranty Insurance is designed to protect the consumer against two major risks:

1. That their builder will go broke before completing construction of their home under contract, and
2. To protect them against major work rectification issues in the event the builder fails to rectify sub-standard work prior to the end of the warranty period (ie. 5-7 years depending on the state program).

The bottom line is that currently in NSW and Victoria the Home Warranty Insurance scheme protects the consumer against neither of these risks. The insurers simply deny all claims whilst pocketing premiums of between $2000 and $4000 on every home built in those states!

Now owner builders are exempt from purchasing home warranty insurance and their numbers are on the rise. Which means one benefit of being an owner builder is a straight up cost saving in excess of $4000. However you must be conscious of your responsibilities if you sell your home within the 5-7 year period. Make sure the work you undertake is of high quality else you will ultimately be liable along with the trades and suppliers you engaged.

For example, suppose you choose a builder and you understand that as part of your contract price there is a mandatory premium included for Builders Home Warranty Insurance. Let’s say you reside in NSW or Victoria. What happens if your builder cannot complete your home and/or your home is riddled with defects?  Well, nothing… unless of course he happens to have gone insolvent, died or disappeared! Yes, you read that correctly. Regardless if your home is literally falling down, unless your builder is dead, disappeared or insolvent then you cannot even make a claim, let alone be compensated. Your only recourse is to trundle off to court for what has turned out for many consumers to be a heart and bank breaking exercise in legal futility where the only winners are the lawyers.

In fact, even if you managed to get a claim up – what are your chances of success?  This is where the real surprises lay because in NSW the official statistics show the insurers pay a 7% claims loss ratio while in Victoria the figure is an appalling 2.5% claims ratio.  This means that for every $100 million in premiums charged by insurers, only $2.5 million is paid back in claims! Compare this to a 65% – 80% claims loss ratio for most other statutory insurance you can see why Builders Warranty Insurance is not being voted the product of the month by consumer groups!

So where does all this leave the Owner Builder? 

First of all about $2000 – $3000 better off by not having to purchase a policy and secondly as an Owner Builder you get to manage your own finances without relying on a third party builder to be doing it for you.  The key to this of course is having the right financial management tools at your disposal to empower your financial control over your own project.

Also having the correct administration and project management tools to ensure that you, as the principle contractor, manage all your risks for the long term life of the home. The management tools that are offered through a UBuild Homes process have been specifically designed to give you this control and long term peace of mind.

If you have control and knowledge then you minimise the risk so the question to ask as a potential owner builder is ‘How can I best minimise my financial risk?’.  If this question is important to you then we should talk!

If you have any questions or comments about Home Warranty Insurance and Owner Building then just add a comment to this article. Be specific about how the insurance works in your state and how it might impact you as an Owner Builder.

Adequate Cover with your Insurance

“As an Owner Builder does your Insurance policy provide you with adequate cover?”

Owner Builder Insurance in Plain EnglishIt’s a great question and one that you must answer clearly before proceeding with a policy purchase. When it comes to Owner Builder Insurance you need to be very careful because not all policies are the same. You are the Prinicipal Contractor as an Owner Builder and the buck stops with you. Please make sure you do your research and get the right insurance protection.

Insurance Policy documents can, at the best of times, read like gobbledegook. For this reason Simon Pascoe at FDBeck Insurance Brokers has provided a plain English breakdown of the jargon used in policy documents to help make things clearer for you.

Owner Builder Construction Policy in Plain English

Generally speaking, most owner builder construction policies will cover fire, storm, impact, malicious damage, theft and public liability.

A word of warning – what’s included within the fine print of the policy Conditions or Exclusions can make all the difference in the event of a loss. It’s important that you ask the right questions of your insurer.

The following is what all Owner Builders need to look for when purchasing construction insurance.

Sub-contractors

Whilst it a good idea that sub-contractors have a minimum of $5,000,000 public and products liability insurance and relevant employers liability insurance, some policies make this a Condition of the Owner Builders insurance policy. As an Owner Builder you may not be on site 100% of the time therefore this Condition of the policy may be too much of a burden.

Some policies also have an Exclusion under the Legal Liability section of the policy for any actions or instructions of any Sub-contractors or their employees. This restriction may leave Owner Builders exposed to extreme risk.

Voluntary Workers

Cover for Voluntary Workers can be a grey area due to the Workers Compensation laws varying in each state. You should avoid policies that have a specific Voluntary Workers Exclusion contained within the Legal Liability section.

It is recommend that even if you don’t employ or plan to employ, you should still seek a simple, basic (or casual) workers’ compensation insurance policy. For more information on Workers Comp visit the Owner Builder Insurance webpage on Workers Compensation Insurance.

Welding

Unless you have complied with the Australian Standards Fire Precautions standards it’s common for policies to apply a welding exclusion under the Legal Liability section of a policy. However, this should only be excluded under the Legal Liability section of the policy relating to third party damage or injury. It should not be a General Exclusion applying to damage to the contract works covered under the Material Damage section.

Demolition

Again it’s common for policies to apply a demolition exclusion under the Legal Liability section of a policy. Avoid policies that have a blanket Exclusion applying to all sections of the policy. If you are not careful you may find that you are not covered for damage to existing structures when demolishing internal structures.

Cover for Vibration, Removal or Weakening of Supports

Policies that exclude this cover can leave you vulnerable to very substantial claims, e.g. where vibration or excavation has caused damage to a neighbour’s property. If excavation or underpinning work is done in accordance with approved engineer’s plans, specifications, condition and geotechnical reports then your insurance should cover you. It’s always a good idea to provide your insurer with these reports prior to going on risk.

Removal of Debris

Some policies limit this amount to $10,000 regardless of the size of the contract. If your contract works incurs a major loss well into the construction period the demolition, disposal of damaged or undamaged contract works and the removal of debris can be significant. If it’s a large project $10,000 will not be enough cover. Consider a policy that covers you for 10% of the contract value.

Professional Fees

Again in the event of a large loss; architects, engineers, surveyors and consultants fees will be incurred for the replacement or repair. Be aware of policies that limit this cover to only $10,000 as it may not be enough. There are policies available that provide up to 15% of the contract value.

Existing Structures

Do you need cover for any existing structures that are not part of your project? If you are renovating or extending, your existing domestic house insurance will generally either cease altogether, or in some cases will continue but with some major restrictions. Cover under your Owner Builder policy is not automatic so be sure to check with your insurer.

Escalation Expenses

Avoid policies that don’t have a special provision for escalation allowance. If your project is damaged and you have to rebuild, you may find that the costs have gone up. Look for insurance that allows for 15% of the contract value.

Cover for Vacant Land Prior to Construction

Don’t be afraid to start cover early because most insurers will charge you a premium based on the contract value for a 12 month period. Therefore if you believe your project will be less than 12 months don’t hesitate to start the cover early because in most cases it will not cost you any additional premium and you will have Legal Liability cover for your vacant land.

Owner Builders and Workers Compensation Facts

This article is by Simon Pascoe at FDBeck Insurance Brokers – A specialist competitive broker service helping Owner Builders with their insurance needs.  

Owner Builder Insurance PoliciesOwner Builder construction insurance policies do not include personal injury claims imposed by Workers Compensation Law. Therefore because you are the Principal Contractor the risk must be separately covered under a specific workers compensation policy issued through a nominated licensed insurer.

Many Owner Builders make the mistake of thinking that because they don’t directly employ anyone then they don’t need workers compensation insurance. Like all insurance and like all legislation imposed by Government the devil is in the detail. It’s important to note that a contractor engaged by you, as the Owner Builder, may be deemed to be a worker under certain provisions of various legislation. Therefore it is highly recommended that Owner Builders seek a simple, basic (or casual) workers’ compensation insurance policy. You need to remember: As the Owner Builder you are the Principal Contractor and as such the buck stops with you. Make sure you are covered.

A common example is where as an Owner Builder asks a family member or friend who is a carpenter to work for them on weekends whilst they are building their new home.  If the carpenter/family member or friend is employed by a propriety limited company during week days, then during this time they will be covered by their employers’ workers compensation policy. However their employers’ workers compensation policy will not extend to cover them whilst they are working for the Owner Builder on a direct basis and outside of their normal employment contract. In the event of a work injury on your site you will be liable for the workers compensation claim and will need to pay the damages.

Another example is when your contractor hires casual labour and then doesn’t insure them for workers compensation. Again as the Owner Builder you could be held jointly liable if there is an accident to that worker and you did not check with the contractor to ensure that sufficient cover was provided for that worker by the contractor.

The best protection is simply to make sure that you don’t leave yourself exposed as an Owner Builder. A  minimum premium workers compensation policy can be taken out very cost effectively. Even if you don’t employ or plan to employ any staff we still suggest that you purchase a minimum premium policy. Workers compensation varies depending on which Australian State you are located in, but in most cases you may only be talking about a few hundred dollars.

For your convenience there is a list of contacts for each Australian State at Owner Builder Insurance.