Insurance cover for structural defects in buildings

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Property owners can now get an extended warranty for buildings in the form of an insurance policy against structural defects. Private insurer HDFC Ergo has launched a policy that compensates for the cost of repairing, restoring or strengthening of a building due to structural defect.

Under the new Real Estate Regulation Act (RERA), builders are liable for any structural flaws detected up to five years from the date of giving possession. While the policy is designed to cover the developer's liability, unlike other liability covers the claim will be paid without the property owners taking legal action against the developer.

The cover is different from the standard property insurance cover, which is a fire insurance policy with added risks. The inherent defects policy covers all those risks that are not covered by the fire policy. Besides structural defect, this will include poor workmanship. Since even small damages are covered, the premium is higher than what is paid out for property insurance, and will be in the range of 0.6-1% of the project cost, depending on the risk features of the project.

What could be reassuring for property buyers is that the policy can be assigned to the new property owners. This means that if an apartment block is sold and the property transferred to a cooperative society, the policy can be transferred to the society. Another reassurance from the policy provider is the knowledge that the project has been audited at the time of construction. The insurance company will appoint an independent technical inspection service to carry out monitoring activities on the quality of the building during the course of construction. This will include services ranging from sample design checks to witnessing tests at site.  

The new policy can be obtained by the developer prior to the start of construction and will have a five-year validity, which is co-terminus with the liability of the promoter under the new law.

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