Insurance mediation remains a mystery to the average layperson or woman. Similar to other branches of the insurance tree, the many complexities of this process tend to elude all but those with some training in the field, and the average insurance policy buyer usually has a significant number of questions and doubts to voice. Fortunately, reputable commercial insurance brokers will ensure the process is as transparent as possible for their clients and will often go so far as to explain certain jargon that is part of the trade jargon.
One such term that applies specifically to property insurance is latent defect insurance. Unlike many other insurance terms, some customers have an idea of what this term means; However, just as many are still unaware of their precise meaning, so this article will attempt to clarify the matter and explain why latent defect insurance plays an important role in the property insurance brokerage process.
What is latent defect insurance?
Latent defect insurance often referred to as a builder’s warranty or simply a builder’s bond is one of the most important parts of insurance policies for buildings and other similar types of real estate. Their goal is to protect a policyholder against property damage caused by defects in the workmanship, statics, construction, or materials of the building.
Unlike other policies offered by commercial insurance brokers, latent defect insurance does not require proof of error, only proof of error, an important nuance that can often help simplify and speed up the insurance process. Likewise, this type of policy is not dependent on architect certificates, professional indemnity, or collateral guarantees, allowing policyholders to protect their investments in a more cost-effective manner. While latent defect insurance cannot completely eliminate the costs if one or more parties must be shown to be negligent, it still means a significantly lower burden for the policyholder than they would otherwise incur.
When does the latent defect insurance take effect?
Virtually any structure can be covered by latent defect insurance. It is most commonly used to cover commercial or residential buildings, but it is not uncommon for a policy of this type to be taken out for a large car park or other less conventional building. Of course, eligibility varies from company to company, but most commercial insurance brokers are willing to work with the client to attempt to arrange coverage for their structure. Therefore, it is always a good idea for a prospective policyholder to ask and see if and how this type of coverage might fit their specific situation.
What are the consequences of not taking out insurance against latent defects?
Of course, as with any other type of clause or policy, persons who purchase property insurance are not required to purchase latent defect insurance. However, there is a good reason why most commercial insurance brokers recommend their customers to take out this type of policy and why some customers even require it in advance. Simply put, restoring a damaged property can be a significant investment in time and money for everyone involved. Protecting the structure with latent defect insurance at least gives the owner peace of mind by ensuring that a solution is in place to deal with any structural defects that may arise in their property. As mentioned above, this type of policy is not a one-size-fits-all solution; but at least it gives policyholders some security and could save them mental, physical, and financial stress if their property is found to be defective. This is the main reason why latent defect insurance is important to the structural insurance brokerage process and why so many commercial insurance brokers advise their clients to take it out.