What does latent defects insurance cover?
When a building is insured during the construction phase, coverage doesn’t necessarily end once the final brick has been laid. Failures and problems with design and workmanship can go unnoticed for several months or even years, leading to larger issues while someone occupies the building.
Fixing such large structural defects can be extremely costly, so it’s important to ensure there is a latent defects insurance policy covering the property long before they potentially rear their head.
What is latent defects insurance, though, and what exactly does it cover? What isn’t covered? Find out everything, and more, below.
What is latent defects insurance?
Latent defects insurance – often called structural warranty – provides cover against latent structural defects in a building. It can be set up by the builder, investor or developer and is passed onto subsequent homeowners and buyers during the duration of cover – currently mandated to a minimum of 15 years for new-build homes.
If structural issues are found on a property several months or years after construction has been completed, the latent defects insurance covers the owner by providing financial protection for the repairs.
The policy can even cover up to the full value of rebuilding the property if required.
Developers tend to take out this insurance for projects before passing the policy to the buyer. This policy coverage can often make properties more marketable thanks to the reassurance it provides.
Latent defects insurance can be purchased for all sorts of property types and projects, including both residential and commercial, and even completed buildings. Also, it can be purchased by anybody who needs it, from self-builders to developers.
What is covered by latent defects insurance?
So, we know what the insurance is, but what exactly does it cover?
It makes financial sense to mitigate the risks of costly latent structural defects – whether you’re a developer, investor, owner or tenant. The policy will give at least a decade of cover for repair costs if damage is discovered resulting from faulty design, poor workmanship, or low-quality materials.
Latent defects insurance typically covers the following elements:
- Fixing defects within the property due to poor design or materials
- Fully or partially rebuilding to rectify structural defects from poor building methods
- Repairing damage caused by water ingress due to faulty waterproofing
The insurance policy may also protect against the insolvency of the developer or builder.
Latent defects insurance can also be tailored to fit individual needs. Extra cover is available for:
- Alternative accommodation costs
- Loss of rent/income
- Mechanical and electrical defects
- Contaminated land cover
- Removal of debris
What isn’t covered by latent defects insurance?
While latent defects insurance covers major structural issues, it does not provide coverage for fixtures and fittings or mechanical systems, like central heating.
This type of coverage will only cover structural defects that are not found during the initial surveys and do not become apparent until months or years after the construction phase has ended.
As a result, the latent defects insurance policy will not cover for the following:
- Known defects or ones discovered before taking out the policy
- Abnormal use of the building or inadequate maintenance
- Non-approved alterations to the building (for example, extensions and conversions)
- Normal wear and tear
- Accidental damage, weather damage, vandalism, arson, etc.
How much does latent defects insurance cost?
Like any insurance policy, latent defects can be purchased with a one-off payment or annual payments for the duration of the term. As each latent defects policy is tailored to unique circumstances, the cost can vary and there is not really a one-size-fits-all approach.
The factors that will determine the overall cost of the coverage include:
- Number, size and type of building
- Construction methods and materials used
- The rebuild value of the property
- Experience level of the main contractor or developer
As you would expect, the larger and more expensive the building or project is, the higher the insurance cost is likely to be. You can attempt to bring the cost of the project down by using reputable builders with a design and materials that comply with building safety codes.
It must be said also, that the price of the insurance can increase dramatically if taken out after construction is completed. If warranty providers aren’t given the chance to sign off on design or materials, there is a high risk of latent structural defects arising in future.
ABC+ Warranty latent defects insurance
If you’re looking for latent defects insurance to protect your build and business reputation, request a quote from ABC+ Warranty.
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