Building Allowance Insurance is required in some areas for construction projects of a certain value and provides protection to property owners if the builder dies, goes missing, or goes bankrupt. It is most popular in countries like Australia and is required by law for registered builders in South Australia. Unauthorized builders may not have this insurance, making it important to hire licensed contractors.
Building Allowance Insurance is an insurance policy that builders must obtain in some areas of the world when the construction project is valued at a certain amount and often requires development approval from the local government agency. This type of insurance policy provides protection to the property owner in the event the builder dies, goes missing, or goes bankrupt during the construction period or within so many years after construction is completed. Building Indemnity Insurance helps protect not only the current owner of the property but also subsequent property owners within a given time frame. A condo indemnity insurance policy may also offer coverage for injuries and property damage to third parties resulting from the builder’s negligence. These insurance policies are most popular in countries like Australia.
In South Australia, under the Building Work Contractors Act (1995), all registered builders must obtain a condominium indemnity insurance policy before undertaking a building project with a statutory value, which is currently A$12,000 (AUD). These builders cannot accept payments for such a project or obtain a local government planning permission until they have purchased a building benefit insurance policy and provided a copy of it to the homeowner or building owner. Any construction projects below this value would not be subject to this requirement. Owner-builders, i.e. builders who build exclusively for themselves, must also take out this type of insurance policy if they intend to sell the property within seven years of obtaining planning permission.
A builder or contractor would normally obtain a building indemnity insurance policy through a regular insurance company that offers such policies and coverage in this specialized situation. This type of insurance policy only becomes applicable if the contractor fails to complete the job or performs it defectively and is not around to remedy the situation. Where a law requires the purchase of such an insurance policy, there is in essence a legal guarantee for the property in question under certain circumstances for a strictly defined period.
Most of these laws requiring the purchase of construction indemnity insurance apply only to licensed builders and contractors. If a home or business owner uses an unauthorized builder, he or she will not have the security of building indemnity insurance unless the builder voluntarily chose to buy the policy. This is one reason why hiring a licensed contractor is often recommended.
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