Construction Insurance: What Ontario Contractors and Homeowner should know

Whether you are a builder by profession or a contractor, most of the new jobs do bring in the money but they also carry a lot of risk. Even if you are a homeowner and are remodelling or renovating your house, construction can be both happy anticipation and excitement alongside a source of potential risk. Your home becomes construction site, even if it is only for a small period of time. In such a scenario, you must have some sort of insurance policy to make sure you are properly covered for any losses you might incur if things do not go as planned.

For the builders, using contractor or construction insurance can help them ease some of the risks associated with accidents at their construction site. Insuring a home while it is being built or constructed is not directed by any form of laws, yet it is very important especially if you are financing the construction cost.



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What is Construction Insurance?

The insurance protection called Construction Insurance provides financial compensation for any potential losses that can incur on a structure or a building or any errors, mistakes or unforeseen events which may lead to various losses or damages during the course of construction on a building. It is usually purchased by the construction companies or other parties who have the interest in the property where the construction is going on.

Generally, construction projects are very expensive and are exposed to various risk factors due to the amount of equipment, materials and contractors that are needed for completing the project. If a business does not have construction insurance, it can make their lives difficult as the process would become extremely risky. Having construction insurance provides the invested parties with the peace of mind in order to go on with their projects.

When there is a proper construction insurance policy in hand, the insured parties or the construction company can enjoy coverage for the risk factors involved that can help them save large sums of money.



Types of Construction Insurance

There are generally three different types of insurance that is needed while building of a new home. It should be noted that all of the banks in Canada require builder’s risk insurance policy and the general liability insurance but the workman’s compensation is only required if your builder has employees.



Course Construction Insurance or Builder’s Risk Insurance

The Builder’s Risk Insurance is designed specially to provide coverage to the homes while they are under construction so that the homes are protected against any form of direct damage and almost anything else that may cause damage such as lighting, fire, hail, windstorm and even vandalism.

The Builder’s Risk policy is required by the lenders that cover the loan amount of the cost which is to build the new home that was mentioned during the appraisal. None of the banks would be willing to finance your home if you do not have this coverage. The insurance does not provide any protection or liability coverage for the contents of the house since there are generally no personal possessions at the construction site.

There is also something known as an ‘All Risk’ insurance which is a broader form of insurance coverage which is available but not necessary for the minimum loan requirements. It provides protection from all risks except those which are spelled out as exclusions. The Builder’s Risk Insurance generally covers at least 100% of the value of the house or the total credit line which has been taken on a construction loan. It is usually the choice of the homeowner to purchase this type of insurance since the home is built on their lot.

The builder would only be insuring it if there is his or her name on the lot and the title would then be transferred to you at the closing.



General Liability Insurance

This type of insurance is usually for specific protection against the third-party insurance claims, which means that the payment is not made to the insured but to the person who may be suffering the loss and is not a party to the insurance contract. For example, if a neighbour’s child plays on the construction site and he ends up getting injured or hurt.

This policy can be provided by either you or the builder and it is a broad form liability endorsement or a comprehensive general policy. If the insurance is provided by the builder then a broad form liability endorsement or a general policy of $2,000,000 is needed. The owner builders are the ones who are legally responsible for any damages or conduct on the job site and they may be sued in case of negligence. The General Liability Insurance policy can solve this problem but since it is a commercial policy it may be quite expensive for the owner builder.

As such, the arrangement as to who will be the one providing for this insurance can be decided between the builder and the homeowner. Most of the times, it is the builders however who end up providing for this policy which provides coverage for all possible accidents on the site. You must ask your builders upfront whether or not they have this policy as there are many builders who do not have this policy or do not want to pay for this insurance.

You can save money if you choose a builder who has this insurance in place.



Workman’s Compensation Insurance

If your builder tells you that he does not have any form of insurance policy, he may be right since it is not mandatory to have insurance to build a house. If the builder subcontracts the work and he does not have any employees then he must give a written consent that he doesn’t have any employees and as such does not require the Workman’s Compensation Insurance (WSIB).

If on the other hand, the builder has employees who are on the construction site, helping to build your home then the Workman’s Compensation Insurance is required. It protects the contractor and the workers who are on the site. If a worker suffers some injuries during the construction and this policy is not in place then he can come after both, the home owner and the contractor.

Sometimes even banks ask for this type of insurance, so make sure you choose a builder who has this in place and this can help your loan process.




contractor carrying rope to job site




Construction Insurance for the home owners

Homeowners spend around $53 billion on their home renovations in 2015 which was one of the record expenditures. CIBC suggested that Canadians were now spending around $17,142 on average on their home renovations. The low rate of interest along with the high cost of real estate created a lot of investment in home renovations. Moreover, thanks to the friendly renovations rebates offered by the Ontario government, this trend continued to be on the rise.

When the home owners are spending so much on their home remodeling, then it makes sense for them to protect themselves against unforeseen events and risks. For most of the homeowners, their current insurance policy would most likely not cover the potential losses which may arise during their home renovation.

While there is construction going on, either renovating or building a new home, the safety of the contractors, of your home and your family is crucial for the success of your project. A lot of times the home renovation projects involved a lot of dangerous equipments, unstable or incomplete building structures and unsecured property that can put you at the risk of potential injury, accidents, property damage, theft or even fire.



Choosing the right Construction Contractor

When you decide the contractor to whom you will give the charge of your home renovations or building project, the decision should not be limited to just checking out their samples, availability and getting an estimate. In the early stages, you must also check for their insurance before hiring them so that you can know whether or not they are covered with General Liability Insurance or Workers Compensation as well.

Most of the times, when homeowners are building a new house, they assume that the construction insurance will cover all their needs. In many of the cases, it may cover their own equipment or property but the coverage may not extend to the home owners. You must realize that the materials or the equipment which is being kept on your property before it has been installed will not be covered until it becomes part of your house. As such, only the builder’s risk insurance policy would cover for the value of such materials in case there is damage or theft.

This builder’s risk policy can be purchased by the homeowner or the contractor. In order to know how much of the coverage is required by you, you can consult your insurance broker for details and they will take into account details such as the construction schedule for the project and the estimated budget amongst other things.



Large renovations affect the home insurance coverage

Once a major renovation is complete, the replacement value of your home may become a lot different. If you have just built a new addition to your place or finished making your basement that has added considerable value to your house then you would want to have coverage for the full value in case there is a loss. This would also end up changing the amount of the home insurance policy as your commence the project.




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