Insurance is crucial for any construction project, from the moment ground is broken through to post-completion occupancy. Each stage of a build comes with its own set of risks, many of which are not covered by standard commercial insurance policies. Choosing the right type of construction cover is essential not only for risk mitigation, but also for meeting lender, contractual and regulatory requirements. Two of the most important policies in this space are latent defect insurance and contractors all-risk insurance. Understanding how they differ and when they apply can help prevent costly oversights that compromise your financial protection.
What is Latent Defect Insurance?
Latent defect insurance is designed to protect property owners and developers against hidden structural issues that only become apparent after a building is completed and in use. These are not issues that would have been picked up during normal inspections or snagging processes. Instead, they’re faults that may take months or years to manifest.
Scope of cover
Cover for structural faults caused by defective design, workmanship, or materials at the time of construction is typically provided under latent defect insurance, which helps pay for repairs or rebuilding after completion. This includes issues such as foundation failures, water ingress through external walls or roofing and subsidence caused by poor design or engineering.
When it applies
This type of policy becomes active once construction is completed and the building is handed over. Most policies offer protection for a standard period of 10 to 12 years from practical completion, making it a long-term safeguard for owners and investors.
Common exclusions
Latent defect insurance does not usually cover issues that arise due to poor maintenance, general wear and tear or cosmetic damage. It also excludes any non-structural problems such as faulty fixtures or internal finishes that don’t impact the building’s integrity.
What is Contractors All-Risk (CAR) Insurance?
Contractors all-risk (CAR) insurance is intended to protect contractors, subcontractors and site owners during the construction phase. It ensures that if something unexpected happens before the project is completed, the financial impact can be minimised.
Scope of cover
Contractors all-risk insurance provides broad protection against accidental physical loss or damage to a construction project while it is underway. It typically applies to the structure being built, any temporary works and associated plant or equipment.
Key inclusions
Key risks covered include theft of materials on site, fire, storm damage, flood and accidental damage to the works in progress. It can also include cover for hired plant, tools and temporary buildings used during the build.
Common exclusions
Like most policies, Contractors all-risk insurance has exclusions. These often include damage caused by defective design, materials or workmanship, as well as gradual deterioration or wear and tear. These exclusions highlight the need for additional policies like latent defect insurance.
Key Differences Between the Two Policies
While both latent defect insurance and contractors all-risk insurance are essential in construction, they serve very different purposes.
Timing of protection
Contractors all-risk insurance applies during the construction process. It ends once the building reaches practical completion. In contrast, latent defect insurance begins after completion and remains in force for several years, offering long-term reassurance to property owners.
Type of risks covered
CAR focuses on immediate and visible damage to the construction works caused by events like fire or theft. Latent defect insurance, on the other hand, protects against hidden flaws that only become evident once the building is occupied.
Parties protected
Contractors, subcontractors and site managers are primarily protected through contractors all-risk insurance. Latent defect insurance is geared towards protecting property owners, developers and any future buyers by covering the cost of latent structural faults.
How the Two Policies Complement Each Other
Many developers and construction firms choose to take out both contractors all-risk insurance and latent defect insurance because they offer protection for different phases of the project lifecycle. One doesn’t replace the other. Instead, they work hand-in-hand to ensure continuous coverage from start to finish.
For example, if a fire breaks out during construction and destroys part of the structure, CAR insurance would cover the damage. But if years later the roof collapses due to hidden structural weaknesses, latent defect insurance would step in. This seamless transition of protection is particularly important in large-scale or complex developments where the risks shift significantly over time.
Choosing the Right Policy for Each Phase
Understanding which type of insurance is appropriate at each stage of your project can help you allocate resources more effectively and prevent future liability gaps.
Early construction phase
At the initial stages of a build, the priority should be comprehensive Contractors all-risk insurance. This ensures that any on-site incidents, whether accidental or due to weather, are fully covered during the physical build process.
Post-handover phase
Once the building is complete and handed over, the risk profile changes. Focus should shift to securing latent defect insurance, which will protect against structural issues that arise after the builder’s direct responsibility ends.
Projects with extended timelines or high complexity
For long-term or high-value builds, a combined approach is often necessary. Large commercial or residential developments with phased handovers especially benefit from having both policies in place, ensuring no period is left without adequate cover.
Common Mistakes to Avoid
A frequent mistake is assuming that contractors all-risk insurance provides protection after the build is complete. This misunderstanding can lead to expensive repair costs when latent defects appear years later. Another error is underestimating the cost of investigating and proving the origin of a structural issue, which is often necessary to trigger cover under a latent defect policy. These investigations can be time-consuming and costly, especially without the right documentation.
Why Smart Insurance Planning Matters in Construction
Phase-appropriate is often a contractual and financial necessity. Without the right insurance, both builders and owners can find themselves exposed to significant losses and legal complications. Investing in both contractors all-risk and latent defect insurance not only satisfies stakeholders such as lenders and buyers, but also ensures projects are protected throughout their lifecycle.
By working with Buildsafe and understanding the scope and limits of each policy, developers and contractors can avoid the pitfalls of inadequate cover and focus on delivering quality builds that stand the test of time.
Get Expert Support for Tailored Protection
Choosing the right construction insurance isn’t always straightforward. A combined approach using contractors all-risk insurance and latent defect insurance provides peace of mind at every phase of the build.
For expert guidance and tailored protection across your whole project, speak to Buildsafe today.
