Haus & Wohnen
Construction all risks insurance
Is construction insurance useful or not
Construction Performance Insurance: Invest wisely and manage construction risks cleverly
Building a house comes with many uncertainties, and statistically, every second construction project encounters a loss event. A construction performance insurance protects you from the often existentially threatening financial consequences. Learn when this insurance is indispensable and how to ensure optimal protection for your project.
The topic in brief and concise terms
A construction all-risk insurance protects builders and involved companies against the financial consequences of unforeseen damages to the structure during the construction period, such as those caused by storms, vandalism, or negligence.
The cost of insurance depends on the construction sum, type, and duration, and is relatively low compared to the potential damage; often it is a prerequisite for construction financing.
Key exclusions often include fire damage and construction defects; it is essential to thoroughly review the contract terms and supplement them with, for instance, a builder's liability insurance and structural fire insurance.
Construction All Risks Insurance: The Facts – Protection Against Unpredictable Construction Risks
A builder's risk insurance covers unforeseen damages to the shell and new construction throughout the entire construction period. It protects builders and all involved companies from the financial consequences of, for example, extreme weather events or vandalism. The sum insured is based on the total production costs of the building, excluding land and development costs. Many banks even require the conclusion of such a policy for granting a construction loan.
Statistically, fifty percent of all construction projects experience a loss. Builder's risk insurance typically covers damages due to force majeure, negligence, theft of installed parts, and construction or material defects. It is an indispensable safeguard to minimize the financial risk of a construction project, which often amounts to several hundred thousand euros. The coverage usually starts with the setup of the construction site and ends with readiness for occupancy or acceptance. A builder's liability insurance ideally complements this protection.
Practical Check: When does construction performance insurance pay out and what costs arise?
The builder’s risk insurance covers a multitude of unforeseen events that can occur during the construction phase. A typical example is a severe storm that damages the newly covered roof, allowing rain to seep in, which leads to further damage to the interior fittings; in this case, the insurance covers the repair costs. It also covers vandalism, for instance, if unknown individuals break window panes or damage already installed sanitary fittings. Another scenario involves unforeseen ground conditions that cause subsidence and damage to the shell structure – here, costs for damage assessment and rectification are also covered.
The costs for builder’s risk insurance vary and depend on several factors. Key factors include the construction sum, the type of construction project, the planned construction period, and the desired level of coverage. For a construction project with a sum of 250,000 Euro, good builder’s risk insurance can be obtained for a one-time premium below 300 Euro. For a construction sum of 350,000 Euro, the premium increases by about 65 to 100 Euro. Many policies include an excess, which can range between 150 and 2,500 Euro. It is common practice to allocate the costs proportionally to the involved construction companies, as they also benefit from the insurance coverage. A fire shell insurance is often not included and should be considered separately.
Scope of services in detail: These damages are typically covered
The primary benefit of a construction insurance policy lies in the protection against unforeseen damage or destruction during the construction period. The insurance typically covers a wide range of risks, including:
Damage due to extraordinary weather conditions such as storms, hail, or heavy rain (but not normal weather conditions like frost).
Vandalism and malicious damage by third parties.
Theft of components already permanently attached to the building (e.g., radiators, windows).
Negligence or clumsiness of construction workers leading to damage.
Unknown characteristics of the building ground that cause damage.
Consequential damage from construction or material defects (not the defects themselves).
Glass breakage in fixed panes.
Damage caused by collapsing scaffolding or falling components.
It is important that the insurance covers the costs of restoring the state immediately before the damage occurred. This includes material and labor costs. Cleanup costs and the costs of determining the damage are often included as well. A useful addition can be the home insurance, which applies upon completion.
Limits of Coverage: What the Construction Performance Insurance Does Not Cover
Despite comprehensive coverage, there are certain risks and damages that a construction performance insurance typically does not cover. It is important to be aware of these exclusions to avoid gaps in insurance coverage. Common exclusions include:
Damage caused by fire, lightning, or explosion; for this, a separate fire shell insurance is necessary, which is often offered as a complimentary component of a subsequent residential building insurance.
Damage caused by normal weather conditions that can be expected seasonally and locally (e.g., frost without extreme cold).
Construction defects, that is, errors in the execution of the construction itself; in this case, the executing company is usually liable.
Theft of loosely stored building materials or tools; typically, only the theft of permanently installed parts is covered.
Costs due to delays in construction time, unless a special construction business interruption insurance has been taken out.
Insolvency of the builder or other contractual partners.
Damage intentionally caused by the policyholder or their representatives.
Acts of war or civil unrest.
Carefully review the insurance conditions for exclusions and coverage extensions. For comprehensive protection, additional modules or supplementary insurances such as natural hazard insurance for the completed building are often advisable.
Optimal Coverage: Tips for Choosing the Right Construction Insurance
Selecting the right construction performance insurance requires a careful review of various offers and contract details. An important aspect is accurately determining the sum insured; this should encompass all construction costs of the building, including materials, components, and personal contributions. Setting the sum too low can result in underinsurance and consequently reduced benefits in the event of a claim. It is advisable to calculate the construction sum generously; additional contributions are often small, and any overpaid premiums are refunded after the final settlement.
Pay attention to the exact scope of benefits and possible exclusions. Consider the following points when making your selection:
Check whether damages caused by gross negligence are covered.
Clarify the amount of the deductible; a usual range is between 150 and 2,500 Euros per claim.
Ensure that damages caused by unknown characteristics of the building plot are covered.
Consider additional modules such as the inclusion of theft of already installed parts or insurance against damage to old buildings during renovations.
Inform yourself about the terms regarding duration and possible extensions in case of construction delays.
Compare not only the price but especially the services of at least three different providers.
Make sure that search and clean-up costs are insured up to a reasonable amount (e.g., 20,000 Euros).
Our expert tip: Document the progress of the construction regularly with photos to provide evidence in the event of a claim. A comprehensive overview of necessary construction insurances helps to keep track.
Supplementary insurance for comprehensive protection in construction
The construction performance insurance is a key component, but for comprehensive coverage, additional insurance policies are often necessary. One of the most important is the builder's liability insurance. It covers personal and property damage to third parties occurring on your construction site, such as when a passerby is harmed due to inadequate site security. The coverage amount should be at least three, preferably five million euros.
A fire shell insurance is essential, as fire damage (fire, lightning, explosion) is typically not covered by the construction performance insurance. This is often included at no additional cost in a later residential building insurance policy, which protects the building after completion. For builders who are undertaking work themselves or employing private helpers, an accidental injury insurance for construction helpers is important because these helpers must be covered through the trade association. Check whether the risk for the undeveloped land is included in your personal liability insurance or the early signed builder's liability insurance until construction begins. This way, you can close potential liability gaps from the start. For landlords, specific insurance policies for landlords are also relevant.
Conclusion: Construction performance insurance – a sensible investment in the security of your building project
The question "Is construction insurance worthwhile or not?" can be answered with a clear yes for most construction projects. Given the high financial risks and the statistical incidence of damage of about fifty percent, it provides indispensable protection. The costs of construction insurance are low compared to the potential damage amount, which can quickly reach several tens of thousands of euros. It protects not only the builder but also all companies involved, and can help avoid costly legal disputes.
Careful selection of the tariff and consideration of individual project risks are crucial for optimal protection. Also, consider complementary insurances like builders' liability insurance and construction fire insurance. With the right coverage, you can approach your construction project much more relaxed. Building insurance is the next logical step after completion.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive concrete optimization suggestions.
More useful links
Wikipedia offers a comprehensive overview of construction insurance.
The Federal Statistical Office (Destatis) provides current statistics on the construction industry in Germany.
Bauherren-Schutzbund e.V. offers a detailed report on construction defects from the year 2022.
The German Construction Industry Federation delivers figures and facts about the German construction industry.
The Federal Institute for Building, Urban Affairs and Spatial Development (BBSR) publishes analyses on housing and construction topics.
FAQ
Why is construction insurance sensible for private builders?
It provides protection against significant financial burdens due to unforeseen damage during construction that can quickly exceed your own financial resources. As statistically every second construction project is affected, it significantly reduces a considerable risk.
What role does the VOB play in construction insurance?
The VOB/B, amongst other things, regulates the allocation of risks. Construction insurance can provide coverage regardless of fault and thus help to avoid disputes between builder and contractor under VOB.
What is the difference between construction insurance and builder's liability insurance?
Construction insurance covers property damage to your own building. Builder's liability insurance, on the other hand, covers personal injury and property damage caused to third parties by the construction site (e.g., an injured passer-by).
How long does construction insurance last?
Generally, it begins with the setup of the construction site and ends when the building is ready for occupancy or acceptance, usually after two years at the latest. If there are delays, an extension must be requested.
Are personal contributions insured under construction insurance?
Yes, the value of planned personal contributions should be included in the insurance sum. Some insurers may charge an additional premium for this because the risk can be considered higher for do-it-yourself work.
What happens if construction costs increase during the build?
If construction costs increase, this must be immediately reported to the insurer to adjust the insurance sum. Otherwise, there is a risk of underinsurance, which could result in a reduction in compensation in the event of a claim.
