Ten-year insurance is a concept that not everyone knows. However, with the real estate crisis and the millions of homes built during the real estate bubble in the US, the ten-year insurance term has been gaining popularity.
Initially, when you are going to work on a project, what do you think first? As a wise contractor, you think about making a good profit and reducing the risk of losing money. A ten-year insurance policy is the best option to make your work highly profitable. Let’s see what it is and how you can leverage it.
What is ten-year insurance?
Ten-year insurance guarantees the responsibilities of builders, developers, and architects of a building for material damage caused by defects that affect the stability or mechanical resistance of the building.
What risks does ten-year insurance cover
Ten-year insurance is backed by Law 38/1999, of November 5, on Building Planning. Its creation tried to solve those problems before the civil liability insurance partially remedied its publication that some professionals or promoters had.
For this, article 19 of the Law establishes three deadlines in which responsibilities can be demanded:
- Damages compromise the mechanical resistance and stability of the building. It takes ten years for those damages caused by defects that affect the foundation, the beams, or the slabs, among others.
- Damages that do not comply with the habitability requirements: up to three years for defects in construction elements or facilities.
- One year for defects that have occurred in the finishing or finishing elements of the work.
- Mandatory ten-year insurance
- The Law establishes its obligation for those buildings whose main destination is housing.
To make this obligation effective, it does not allow the inscription of the new work in the Property Registry, making it impossible for the developer to obtain mortgage financing or market the homes.
However, the problem arises that the house can be transferred before ten years to a third party, which is unprotected. Therefore, the Law obliges the self-motor-seller to contract a guarantee for the remaining time until the ten years are completed.
Need for a Technical Control Office
The Technical Control Offices (OCT) are those engineering and architecture companies whose mission is to control the quality of the product, execution of the material of the building process, and apply the regulations. In short, the OCTs review and report on both the documents of the work as that what is being done is done according to the required quality.
The OCT supports the insurance company to be the one who issues the ten-year insurance since most insurers only admit risks if an OCT supervises the work.
However, there is also the possibility of contracting ten-year insurance without OCT if the building is finished, with very few insurance companies willing to assume these risks and demanding very high premiums.
Essential facts about builder’s risk insurance
- It refers to construction insurance. It helps you when you cover all your construction projects during construction.
- It covers the structure under the property construction or remodels project when homeowners’ policies will not work. It is a specialized part of property insurance.
- It covers all the materials and supplies you need to finish your construction project. They don’t pay from their pocket if the builder’s material is damaged due to flood, fire, or high winds.
- You can avail of this policy unless you finish your construction projects, whether the duration is up to three months, six months, or one year. An insurance policy will benefit you if the completion of your project takes longer.
- Builder’s risk insurance policy is comprehensive coverage that safe you from intentional acts, specific inclusions, or short fraud.
- It also covers your temporary structures, and you don’t need to pay for the damage to your scaffolding or constructor forms.
- This policy will cover the expense of others’ damage during construction. For example, if lightning ruins anything to your neighbor’s house or spreads fire to your project during construction, the builder’s risk insurance policy will give full coverage.