One of the most common questions we get asked is what insurance a builder (or sparky, plumber, roofer, tiler etc) should have. Everyone wants what we call the “Goldilocks Package”: not too little, not too much, but just the right amount. Below is a summary of our Goldilocks Package. Just bear in mind (if you’ll pardon the pun) that your business and/or the work you do may require a different level of cover than this standard.
On average, insurance represents 12% of a building company’s overheads, not including ACC.
This figure is based on a study compiled by Waikato University, using figures gathered from accountants on thousands of businesses every year, comparing different expense categories across all industries. It serves as a good benchmark for building trade businesses.
Who is our Goldilocks?
Our basic insurance package is based on a typical customer of Builtin who is representative of many trade businesses. The package also suits businesses that are both larger and smaller, with adjustments to the level of cover, number of vehicles, value of tools etc. We call our Goldilocks Craig, and here are the highlights:
- Craig is 37 years old, married with two kids
- He works 60 hours a week, on the tools and doing pricing and paperwork in the evenings
- He draws an income from the business of $70,000 per year
- His business’s turnover is around $500,000 per year, but can go up and down depending on whether he gets some bigger jobs
- He has one work vehicle and around $20k of tools (at replacement value)
- He employs one other person and otherwise uses subcontractors when needed
- He primarily works directly for homeowners, but will do some labour only work on occasion for other builders
- He mostly does residential alterations & renovations, but will do the occasional new build if/when it comes up
What’s in the package?
Liability & Indemnity
- Public liability – covering your liability for accidental damage to another person’s property. Make sure your policy is tailored for the building industry by including cover for the property being worked on and damage caused by faulty workmanship.
- Statutory liability – covering your liability for fines & penalties under legislation. This includes the Building Act, Fair Trading Act & Resource Management Act. Fines under the Health & Safety at Work Act can’t be insured, but the policy covers associated legal defence costs and reparations awarded following a prosecution.
- Professional indemnity – covering your liability for mistakes that result in a financial cost to a third party. Eg. incorrect installation of components, failure to follow a specification or design correctly.
All of these policies include cover for associated legal defence costs.
Full cover includes cover for damage to your vehicle, theft and liability for damage or loss to third parties also. Check whether your policy covers windscreens for free (no excess), signwriting and remember to include trailers too.
Tools & Equipment
Check if your policy covers replacement value (new for old) and whether it only covers burglary if there have been signs of forced entry, or if it will also cover theft “in the open air”. Also check the theft/burglary excesses.
Many trade professionals are the main income generator for their business, and consequently for their family. So, if they get sick and can’t work that can materially affect their income. While ACC covers accidents, it doesn’t cover illness and sickness, which are statistically the most likely reasons for someone in the construction industry being unable to work. Income protection insurance replaces lost income due to both accident and illness, and in combination with dialling down your ACC cover can be a very affordable option.
Project specific cover
Aside from this basic package, builders also need to consider cover on a project specific basis.
10 Year Building Warranty
This gives peace of mind to your client, as it protects their financial investment in the building work by guaranteeing to refund their deposit or complete the work at the agreed price if their builder is unable to do so. The insurer also agrees to fix defects that might arise over the following 10 years. After the first one or two years some warranties protect the builder from the cost of fixing defects too.
Contract Works Insurance
This covers the works being constructed for losses such as theft, accidental damage, vandalism, flood, fire, earthquake etc. For new builds the builder is normally responsible for arranging this (unless it’s labour only). However, for work to an existing structure (such as extensions, alterations and renovations) it is typically up to the homeowner to arrange this with their current house insurer. Builders should not start work before seeing a copy of the insurance certificate.
In a nutshell
The above represents the Goldilocks Package for a typical building trade business. Your individual circumstances may require a different configuration of insurance and there are other risks not covered by this package, for which insurance may also be available. Request a quote for our package at: https://builtininsurance.co.nz/quote/quote-request.