What is LDI Insurance?
When you insure the construction of a building, whether new or an existing building, it isn’t necessarily over when the construction process is completed. Failures in design, materials, or workmanship can go undetected for several months or even years, when latent defects cause issues within the building and potentially compromise fire safety systems.
Rectifying such defects can be expensive, which is why it’s important to have a latent defect insurance policy from the start of the project. LDI policies don’t necessarily prove liability, but they can help to cover the costs of fixing latent defects, taking financial pressure off the building owner.
This post-completion latent defect insurance cover is available for 15 years from the building’s completion certification date under the Building Safety Act 2022, which is brilliant for property owners. It can also cover up to the full value of rebuilding the property if required.
What does latent structural defects insurance cover?
So, whether you’re a developer, investor, owner, or tenant, it makes financial sense to mitigate the risks of disruptive and costly latent defects by having the proper building warranty in place.
This policy should give you at least 10 years of cover for repair or reinstatement costs if an inherent defect is discovered resulting from inadequate design, construction faults, poor building materials, or mechanical and electrical services.
LDI typically covers the following elements in residential projects:
If taken out by the buyer of an off-plan property, the policy may also include protection against the insolvency of the developer or builder.
Latent defects insurance can be tailored to your individual needs, with potential extra cover available for:
This insurance can be purchased for a variety of projects and property types, including residential and commercial, speculative and non-speculative, and even completed buildings. It can be purchased by anyone who needs it, from a self-building property owner to national developers.
When you have this type of insurance, you don’t have to worry about proving negligence or determining who is at fault for the defective work. This helps to minimise disruption, allowing homeowners to access repair funds as quickly as possible following a successful claim rather than waiting for the outcome of complex litigation to prove negligence against the developer or builder.
What’s excluded from a latent defects insurance policy?
As the alternative name of structural warranty implies, latent defects insurance covers problems with the building’s structural integrity. Generally, these policies don’t cover fixtures and fittings inside the property, or mechanical systems, such as heating.
A latent defects warranty will only cover structural defects that are not found during initial surveys and do not become apparent until months or years after completion of the building. This means that the policy will not cover the costs for damage resulting from:
Latent defects insurance usually will not apply to anything that hasn’t been signed off under the technical audits that take place as part of the warranty process.
Can you obtain latent defects insurance after project completion?
You may be unsure of who latent defects insurance is for, which properties are eligible for a latent defect policy, or even when exactly this type of insurance applies. Most warranties covering structural defects are adjusted on a case-by-case basis to the specifications of the project, so this can vary, but they tend to be available for a variety of buildings, including:
These can include private or social housing, elderly or student accommodation, business premises, and public sector buildings. Essentially, any type of newly built or altered structure can benefit because latent defects insurance covers the quality and safety of its structural elements.
As such, a variety of people and professionals can set up a latent defects insurance policy. Though the developer and/or builder typically do this before construction begins, the policy later passes to the building owner who buys the property. However, if the insurance isn’t already in place at the time of purchase, the owner may be responsible for arranging retrospective cover.
This means that not just contractors but also homeowners, business owners, landlords, leaseholders, housing associations, and financial lenders may find that it’s in their best interest to set up a latent defects warranty themselves to protect their investment in the building. The sooner this is secured, the better, as you will then have increased protection at a lower premium.
How much does latent defects insurance cost?
Like most insurance policies, latent defects insurance can be a single one-off payment or annual payments for the duration of the policy term. As each latent defects insurance policy will be tailored to the unique circumstances of the project or building, the cost will vary.
Factors that can affect the cost of latent defects insurance include (but are not limited to):
As you might expect, the larger and more expensive the building or development, the higher the insurance costs. However, using reputable builders with a design and materials that comply with building safety codes can help reduce the cost of latent defects insurance.
One thing that could drive the cost up is waiting until after construction has already started, or even until it’s been completed, to apply for a latent defects insurance policy. If warranty providers haven’t signed off on designs or materials, there is a greater risk of structural defects.
What other cover is available?
At ABC+ Warranty, we also offer a 6-year Professional Consultants Certificate (PCC) as an alternative warranty.
This is formerly known as a CML Certificate (Council of Mortgage Lenders) and demonstrates that your professional consultant has the necessary experience and professional indemnity insurance in place, having visited your construction site to check on the progress of the build.
