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Starting renovation or construction work financed with a mortgage means embarking on an exciting, but also complex, journey. Between plans, quotes, and deadlines, one fundamental aspect that cannot be overlooked is construction site safety. An unforeseen event, such as damage to the property or an injury, can turn the dream into a nightmare, with serious financial and legal consequences. For this reason, taking out adequate insurance for the construction site is not just a prudent choice, but often an essential requirement demanded by the lending bank.
In Italy, as in the rest of Europe, the culture of risk prevention in the construction sector has strengthened over time, balancing tradition and innovation. While the solidity of buildings is a point of pride in Mediterranean culture, the modern complexity of construction sites requires advanced protection tools. This article explores in detail the importance of insurance policies for mortgage-funded construction sites, analyzing the necessary coverage, legal obligations, and benefits for the client.
A construction site is a dynamic and potentially dangerous place. Excavation work, scaffolding assembly, the use of heavy machinery, and the presence of various workers exponentially increase the risk of accidents. These can cause direct damage to the work under construction, to pre-existing structures, or, even more seriously, to third parties, such as neighbors or mere passersby. The responsibility for such events falls, first and foremost, on the client, i.e., the person on whose behalf the work is being carried out. Facing the financial consequences of an incident without adequate coverage can jeopardize not only the completion of the work but one’s entire personal assets.
The bank, by granting a mortgage for renovation or construction, invests in the project just as much as the owner. Therefore, the credit institution has a vested interest in ensuring the project is completed without setbacks that could affect its value or feasibility. Requiring a specific insurance policy for the construction site is a form of guarantee for the bank, which ensures that any damages will be compensated, preventing the financing from being blocked or the value of the property securing the mortgage from being compromised.
The most comprehensive and sought-after insurance solution in these contexts is the C.A.R. (Contractor’s All Risks) policy. This policy is designed to offer broad-spectrum protection throughout the entire duration of the work, from the opening of the site to the final inspection. Although it is only legally mandatory for public contracts, it is strongly recommended and often required by banks for private projects as well.
Its strength lies in its “all risks” structure, which covers all material and direct damage to the work, except for what is expressly excluded in the contract. The CAR policy is typically divided into two main sections:
In a market that combines construction tradition with innovative techniques, flexibility is essential. CAR policies can be customized with numerous optional endorsements to adapt to the specific needs of the construction site. For example, it is possible to extend coverage to damage resulting from design errors, an ever-present risk in modern construction. Other useful extensions include coverage for construction machinery and equipment, for socio-political events like strikes and riots, or a “maintenance” guarantee that extends protection for a certain period even after the work is completed. This modularity reflects the balance between the solidity of tradition and the need to respond to the complexities of innovation.
The client, even when entrusting the work to a company, retains significant legal responsibilities for site safety, as established by the Consolidated Law on Safety (D.Lgs. 81/2008). Taking out a CAR policy is one of the main tools for managing these responsibilities. When taking out a mortgage for purchase and renovation, the bank will almost certainly include the subscription of a policy to protect the construction site among the conditions for disbursing the loan. Usually, the bank requires to be named as the beneficiary of the insurance lien for the part relating to property damage, thus ensuring it is directly compensated in the event of an incident that compromises the mortgaged asset.
It is important to note that the CAR policy is distinct from the classic fire and explosion policy on the mortgage, which is always mandatory and covers the property in a “static” condition, but not the specific risks of the construction phase. Likewise, it differs from optional credit protection insurance (CPI) policies, which protect the borrower in case of events like job loss or disability.
The cost of a CAR policy varies based on several factors, including the total value of the work to be built or renovated, the type and complexity of the work, the duration of the construction site, and the included optional endorsements. Generally, the premium is calculated as a percentage of the total value of the works, which can range approximately from 0.90% to 1.20%. Although it may seem like an additional cost, it should be considered an essential investment for the peace of mind and financial security of the project.
The policy’s coverage begins when the construction site opens, i.e., at the actual start of the work, and ends with the issuance of the static testing certificate or the formal handover of the work. This ensures continuous protection during all the most critical phases of the project, from the first excavation to the final finishing touches.
Insuring a construction site during work financed by a mortgage is a crucial step that combines the prudence of tradition with the need to manage the risks of innovation. The CAR policy is the most complete tool to protect the client, the company, and the bank from unforeseen events that could have devastating consequences. It protects the financial investment, covers civil liabilities, and ensures that the dream of building or renovating one’s home is not interrupted by accidents. Before starting any work, it is therefore essential to talk with your bank and an insurance advisor to identify the most suitable solution, turning a contractual obligation into a valuable opportunity to experience the renovation with greater security and peace of mind.
Yes, when you apply for a renovation mortgage, the bank mandatorily requires you to take out a policy to cover risks. The basic policy is the “fire and explosion” policy, which protects the integrity of the property on which the bank has a lien. Often, however, a more comprehensive policy, such as a CAR (Contractor’s All Risks) policy, is also required or strongly recommended, which covers damage to the work and third-party liability during the project.
The coverage varies. The minimum mandatory “fire and explosion” policy covers direct material damage to the property caused by events like fires, explosions, lightning, or system failures. A more extensive policy like CAR (Contractor’s All Risks) offers “all risks” protection and includes: direct material damage to the work under construction (also for weather events, theft, construction errors), demolition and debris removal costs, and, crucially, Third-Party Liability (TPL) for damages unintentionally caused to people or property during the work.
It depends on the agreements and the type of policy. Generally, the client (i.e., the homeowner) takes out the fire and explosion policy, as it is a guarantee required by the bank for the mortgage. For the CAR policy, which covers construction site risks, it can be taken out by either the client or the contracting company. Often, a single “umbrella” policy is chosen, taken out by one of the two parties, to cover all involved parties, including subcontractors, for simpler management and complete coverage.
The cost is variable and depends on many factors. For the mandatory “fire and explosion” policy linked to the mortgage, the cost is approximately between $30 and $60 per month, often integrated into the mortgage payment. For a more comprehensive policy like CAR, the cost is calculated as a percentage of the total value of the work. Estimates indicate premiums can range from approximately 1.00% to 1.20% of the work’s value for renovations or additions. The minimum premium is usually around €200.
In the absence of adequate insurance coverage, the client (homeowner) is legally responsible for damages unintentionally caused to third parties, such as neighbors. This means you would have to pay out of pocket for all damages, for example, those caused by a water leak that ruins the apartment below or by cracks in the walls of the adjacent house. A Third-Party Liability (TPL) policy, included in the CAR policy or available separately, covers precisely these situations, handling compensation claims and any legal expenses.