Is latent defects insurance the same as a building warranty?

When looking into property insurance, you’ve probably come across a bunch of different terms that sound similar. There are often multiple kinds of insurance policies whose coverage might overlap, while others cover completely separate things.

‘Latent defects insurance’, ‘building warranty’, and ‘structural warranty’ are just some of the names you’re likely to have heard. So, are these all different policies, or are they exactly the same? What do they cover, and who are they for?

Read on to discover the difference between latent defects insurance and building warranties.

What’s the difference between latent defects insurance and a building warranty?

Essentially, latent defects insurance and building warranties are the same type of policy. Also known as a structural warranty, this type of insurance is designed to protect the buyer/owner of a building against the cost of repairing latent structural defects.

There are various types of structural warranties available, which can be tailored to cover many different kinds of properties. For example, commercial latent defects insurance can cover buildings like shops, offices, and warehouses, while a new build structural warranty can provide peace of mind for a homeowner who has bought a newly constructed house.

Whichever term may be preferred for the policy, neither latent defects insurance nor a building warranty is compulsory for most building types. It’s usually the developer’s choice to set this cover up before construction gets underway, increasing the saleability of the property. The transferable policy will then stay with the property and its new owner.

What does a latent defects building warranty cover?

As the name suggests, this kind of policy protects the holder against latent structural defects that might develop in their building. A successful claim would then help to cover the cost of repairing such defects, or even rebuilding the structure if the defects make it unfit for purpose.

Latent structural defects are hidden faults with the structural elements of the buildings, such as the foundations and load-bearing walls, which may not be detectable during initial surveys.

Structural problems can gradually develop over time as a result of faulty design, materials, or construction work. It can take months or years for the defect to become noticeable, which is why latent defects insurance terms tend to last for 10-15 years from the building’s completion.

The policy stays with the property for the duration of this term, transferring to the new owner if the building is sold before the building warranty expires. Unlike other contract types, there are no court proceedings required to prove who is at fault for the latent defects, allowing you to take action to fix structural damage much faster.

Is latent defects insurance the same as building insurance?

No – just as a building warranty isn’t the same thing as building insurance, neither is latent defects insurance. Building insurance comes under the umbrella of home insurance, which is generally concerned with covering accidental damage, vandalism, or theft.

Latent defects insurance only covers the building’s structural integrity against poor construction, while building insurance will typically cover most other elements of the building, including fixtures and fittings, against events such as burglaries, fires, or weather damage.

Both protect the policyholder against financial loss for damage to the building, but they cover different aspects against different causes. Neither policy covers the possessions inside the building – this falls under contents insurance, which is another type of home insurance.

Who is latent defects insurance for?

While it’s not mandatory by law for many types of properties, latent defects insurance is essential for new build properties or conversions to protect the large financial investment against repair costs for defective workmanship.

Developers and builders are likely to find it easier to secure funding and appeal to buyers with a building warranty in place, whether it’s a residential, commercial, or mixed-use property. Buyers or self-builders will also have a smoother time securing a mortgage loan with this cover to reassure the bank that their own investment is protected.

So, if you’re a developer or builder, or a non-professional hoping to self-build your own home, then you should definitely look into taking out a latent defects insurance policy. This can be tailored to the unique circumstances of your build, and offer financial protection for up to 15 years.