Construction works insurance: what it covers and when you need it

TL;DR

Construction works insurance (also called contract works or CAR insurance) covers accidental physical loss or damage to a build while it’s under construction: fire, flood, storm, theft, vandalism, and unintentional site damage. The builder typically takes it out; the policy runs from site setup to practical completion, with an optional defects liability period extension. Single-project policies for a $500K residential build cost roughly $3,000 to $5,000 ex-GST. Annual turnover policies suit builders running multiple sites, at roughly $4,500 to $12,000 for a $500K to $2M/yr turnover range. The two most expensive mistakes: underinsuring the contract value (triggers proportional payout reductions) and not extending coverage to existing structures on a renovation, which leaves the owner uninsured.

What it is

Construction works insurance (also marketed as contract works insurance, contractors all risks (CAR), or builders risk insurance) is a project-specific property policy covering the physical works during construction. It sits alongside public liability insurance but covers a different risk: damage to the build itself, not injury or damage to third parties.

Most residential building contracts require the builder to hold it. Lenders commonly require evidence before releasing progress drawdowns.

Also known as: Contract works, CAR insurance, builders risk insurance.

What it covers

A standard construction works policy has two components, usually packaged together:

Material damage (the works)

Covers accidental loss or damage to the construction itself, including:

Fire, storm, flood, cyclone, and hail
Theft and malicious damage (including vandalism)
Accidental damage during construction
Scaffolding, formwork, and temporary structures
Materials stored on-site and awaiting installation
Materials in transit to the site (check sub-limits)
Completed work that hasn’t been handed over yet

Public and products liability (third-party)

Covers the builder’s legal liability for injury to third parties or damage to third-party property arising from the construction activities. HIA Insurance’s current product offers cover limits of $5 million, $10 million, or $20 million (verified 2026-05-07). Most residential contracts require a minimum of $10 million to $20 million.

Optional extensions

Most insurers offer these as add-ons:

Existing structures (critical for renovations: see exclusions below)
Tools and equipment
Professional fees for repair design
Debris removal (up to 10% of contract value on some policies)
Contract value escalation for variations and cost blowouts (up to 15% on some policies)
Materials in off-site storage or fabrication
Display homes (up to $1.5 million policy limit on some products)

Who takes it out

On new residential builds, the builder holds the policy. Building contracts (HIA, MBA, ABIC) place the obligation on the contractor to insure the works for the full contract period. Financiers confirm the policy before releasing progress payments (verified 2026-05-07, NSW Government insurance requirements page).

On principal-controlled projects (typically larger commercial or multi-residential), the owner or developer takes out the policy and nominates the builder, subcontractors, engineers, and consultants as insured parties under a single programme. This is less common on standard residential work.

Owner-builders take out their own policy. The sum insured should reflect the full replacement cost of the completed structure, not just the materials cost, because a claim settlement must fund paying a licensed builder to complete or rebuild the work (verified 2026-05-07, WebInsure).

Policy types: single project vs annual

Feature	Single project	Annual turnover
Covers	One contract/site	All projects in a 12-month period
Premium basis	Contract value of that project	Total annual construction turnover
Products liability	Not included on all policies	Included
Completed works continuity	Policy expires at practical completion	Ongoing continuity across multiple sites
Best for	Occasional builder, owner-builder	Builder with 2+ active projects at any time

Annual policies run on a “contracts commencing” basis (projects starting during the period) or a “turnover basis” (all active contracts during the period). Discuss with your broker which suits your workflow.

Sum insured: how to set it correctly

Set the sum insured to the full contract value: materials, labour, and all preliminaries, plus an allowance for variations. If the project goes over budget and the sum insured wasn’t increased, a claim may be paid out proportionally rather than in full.

Insurers may auto-include a contract value escalation extension of up to 15% to absorb routine variation growth. Confirm this is in your policy before relying on it.

For owner-builders, insure for the full replacement value (what a builder would charge to complete the work from scratch), not just the material cost.

Do not underinsure. Proportional reductions on claims are a real consequence and a common source of dispute after storm or fire events on site.

Coverage period

The policy runs from commencement of site works to practical completion. Most insurers allow for an extension covering the defects liability period (DLP) after handover. Two extension types exist:

Extended maintenance cover: covers damage during the DLP that results from an event that occurred during construction.
Guaranteed maintenance cover: broader; covers damage during the DLP from causes that occurred before or during construction. Less commonly offered by Australian insurers.

The HIA New Home Building Contract typically has a 13-week defects liability period (verified 2026-05-07, HIA Insurance Services); commercial contracts commonly run 12 months. If the build overruns its programme, contact your insurer before expiry. An unextended policy leaves the site uninsured.

Key exclusions

Common gaps:

What’s excluded	Why it matters
Defective workmanship (rectification cost)	CAR doesn’t pay to fix the defect itself, only damage to sound work caused by the defect (known as resultant damage). Policy wording on this varies: check DE/LEG exclusion clauses.
Existing structures on renovations	The policy covers new works only. The owner’s home is NOT covered under the builder’s CAR policy unless the policy is specifically extended (see below).
Delay penalties and liquidated damages	Financial loss from project delays is excluded unless a Delay in Start-Up extension is in place.
Wear and tear	Normal deterioration is not covered.
Equipment breakdown	Plant and equipment breakdown is excluded unless a specific extension is purchased.
Tools and equipment (unless extended)	Tools are typically excluded from standard material damage cover.
Terrorism	Excluded under most standard policies.
Deliberate acts	Self-inflicted damage is not covered.

Existing structures on renovations: the critical gap

A standard construction works policy covers only the new works being added or altered, not the existing structure. If you’re building an extension, if a storm damages the original roof or internal areas not part of your works, that’s the owner’s responsibility, not the builder’s CAR policy.

The fix: the owner confirms coverage with their home insurer before works start (note: many home policies suspend cover during major construction), or the builder extends the CAR policy to include the existing structure. Both parties should agree on responsibility in the contract before work commences. If neither acts, the owner may have no insurance on their home during the build (verified 2026-05-07, Master Builders Insurance Brokers).

Defects exclusions: DE and LEG clauses

CAR policies use standardised defects exclusion wording. DE clauses (DE1 to DE5) progressively broaden the exclusion of defect-related damage. LEG clauses (LEG 1 to LEG 3): LEG 3 offers the broadest coverage, excluding only the rectification cost of the defect itself but covering all resulting damage to sound surrounding work; LEG 1 is most restrictive.

For residential work, the difference matters most on large remediation or complex renovation jobs. Check your policy wording.

What it doesn’t replace

Construction works insurance is one layer. It does not replace:

Public liability insurance: third-party injury and property damage cover (often packaged with CAR, but confirm).
Home warranty insurance (HBCF NSW, QBCC QLD, Domestic Building Insurance VIC): mandatory last-resort cover if the builder becomes insolvent, dies, disappears, or loses their licence. Statutory obligation, separate from CAR.
Workers compensation: mandatory under state legislation (e.g. Workers Compensation Act 1987 (NSW)). Uninsured workers can shift liability to the site owner.
Professional indemnity: required for builders providing design advice on D&C contracts.

Premium ranges

Indicative market ranges only. Actual premiums depend on project value, location, excavation depth, claims history, builder experience, and insurer (verified 2026-05-07, Tank Insurance):

Scenario	Indicative annual or project premium
Single project, $100K to $500K contract value	$3,000 to $4,200
Single project, $500K to $1.6M contract value	$3,500 to $10,700
Annual policy, $100K to $300K turnover	$3,400 to $3,700
Annual policy, $500K to $2M turnover	$4,500 to $12,000
Annual policy, $3M to $5M turnover	$26,000 to $50,000+

Market note: Australian construction insurance premiums softened in 2025, with average reductions of 5% to 15% in H1 (verified 2026-05-07, Insurance Online AU).

Factors that push premiums higher:

Less than 4 years trading history (some underwriters decline outright)
Excavation deeper than 3 metres (referred for manual underwriting)
Past claims, including small ones over $1,500
100% subcontractor delivery model (many underwriters decline)
High-risk activities: work over water, demolition, heritage buildings

What can go wrong

Underinsurance: the most common claim issue. Sum insured set at the original contract value; cost blowouts during the project mean the policy doesn’t keep pace. Result: proportional payout. Always include a variation allowance upfront.
Not extending for the DLP: policy expires at practical completion, builder assumes coverage continues during the defects period. If a claim arises during the DLP from a construction-period cause, it may be declined.
Renovation without confirming existing structures coverage: as above, the owner’s home is not covered unless the policy is extended. This is a common dispute trigger after weather events.
Subcontractor gap: subcontractors may not be named on the builder’s policy. Check whether the policy covers subcontractor negligence for damage to the works, and whether subcontractors need to carry their own cover.
Policy lapse during extended construction: if the build overruns the construction period in the policy, the site can go uninsured without anyone noticing until a claim is made.
Tools and plant assumed covered: standard policies typically exclude tools and equipment. A separate tools extension is needed.

References

NSW Government: Insurance requirements for contractors working on your home (verified 2026-05-07)
HIA Insurance Services: Contract Works Insurance product page (verified 2026-05-07)
Master Builders Insurance Brokers: What does Contract Works insurance cover? (verified 2026-05-07)
Master Builders Insurance Brokers: Insurance for pre-existing buildings during alterations works (verified 2026-05-07)
Lockton Australia: Ultimate guide to contract works insurance (verified 2026-05-07)
QBCC: Insurance responsibilities for residential building work (verified 2026-05-07)
WebInsure: Contract Works and Liability for Builders (verified 2026-05-07)
Tank Insurance: Contract Works Insurance Cost Guide (verified 2026-05-07)