Insurance for a New Build: Contract Works, Cover Gaps and Underinsurance
While your home is under construction it needs contract works insurance, which covers the partly built structure and materials against events such as fire, storm and theft. Confirm in writing who is arranging it, what it covers and who is named on the policy, because assuming the other party has it is a common and expensive mistake. At completion the cover transitions to standard house insurance, and that is where New Zealand’s sum-insured model catches people: since the move away from open-ended replacement cover, you nominate a rebuild figure, and if that figure is too low you carry the shortfall yourself. Natural hazard cover attaches through your private policy and is capped.
Key Questions Answered
What is contract works insurance?
Cover for a building under construction, including the partly completed structure and materials on site, against events such as fire, storm, flood and theft. It is specific to the construction period.
Who arranges it, me or the builder?
Either can, and that is exactly why it must be agreed in writing. Check who is arranging it, what it covers, the excess, and who is named on the policy, before work starts.
What happens at completion?
Contract works cover ends and standard house insurance takes over, generally around completion and handover. Do not leave a gap between the two, and tell your insurer the home is complete.
What is the sum-insured trap?
New Zealand house policies now generally require you to nominate a rebuild sum rather than offering open-ended replacement. If the figure is too low, you carry the difference, and underinsurance is common.
How does natural hazard cover work?
It attaches automatically to a private home insurance policy and is capped at a set amount, with your private insurer covering above that up to your sum insured. Confirm the current cap and how your policy sits above it.
In This Guide
Key Takeaways
- Contract works insurance covers the building during construction; agree in writing who arranges it and who is named before work starts.
- Cover must transition cleanly to house insurance at completion, with no gap between the two policies.
- New Zealand uses a sum-insured model, so you nominate a rebuild figure and carry any shortfall yourself.
- Rebuild cost is not market value and not the build contract price; it includes demolition, site clearance, consents and professional fees.
- Natural hazard cover attaches through your private policy and is capped; confirm the current limit and how your insurer sits above it.
Who insures a house while it is being built?
Somebody must, and the answer needs to be in writing before work starts. Contract works insurance covers the building under construction, including the partly completed structure and the materials sitting on site, against events like fire, storm, flood and theft. It is a specific product for a specific period, and it exists because a half-built house is both valuable and unusually exposed.
Either you or your builder can arrange it, and that flexibility is precisely why it goes wrong. The failure mode is not malice, it is assumption: each party believing the other has it in place. Ask directly, get a certificate of currency, read what it actually covers and what the excess is, and confirm who is named on the policy. If you are arranging it, tell your builder. Five minutes of clarity removes an entire category of disaster.
What happens at completion?
Cover changes hands. Contract works insurance ends around completion and standard house insurance takes over, and the important thing is that the two meet cleanly with no gap between them. Tell your insurer when the home is complete and occupied, because policies distinguish between a house under construction, a house complete but unoccupied, and a house lived in, and being on the wrong footing can affect a claim.
Your lender will also have requirements here, generally evidence of contract works during construction and house insurance from completion, with their interest noted on the policy. That is often a condition of drawdown, so line it up in advance rather than at the moment the money is needed, a theme we cover in financing a new build.
What is the sum-insured trap?
New Zealand moved away from open-ended replacement cover to a sum-insured model, which means you nominate the figure your home is insured to rebuild for, and that number is the ceiling. If it is too low, the shortfall is yours. It shifted a technical judgement about construction costs onto homeowners, most of whom have no particular reason to be good at it, and underinsurance is common as a result.
Two errors do most of the damage. The first is confusing rebuild cost with market value or with your build contract price. The second is setting the figure once and never revisiting it while construction costs move. Both are easy to avoid once you know to look.
| Figure | What it is | Use it for |
|---|---|---|
| Market value | What the property including land would sell for | Selling, not insuring |
| Build contract price | What you paid to build it originally | Not the rebuild figure |
| Rebuild cost | Demolition, clearance, consents, fees and rebuilding at current costs | Your sum insured |
Rebuild cost is generally higher than what you paid to build, because a rebuild starts by removing what is left and goes through consenting and professional fees again, at whatever prices apply then.
How does natural hazard cover work?
In New Zealand, natural hazard cover attaches automatically when you hold private home insurance, and it is capped at a set amount that has been adjusted over time. Your private insurer covers above that cap, up to your sum insured. The practical points are that it is not something you buy separately, it does not remove the need for adequate private cover, and the cap is worth confirming as current rather than assumed.
This is a live consideration in Nelson Tasman, where sites carry real exposure to weather events, slips and coastal conditions. It is another reason the site assessment done before you buy matters, and why sum insured should reflect what rebuilding on your particular site would actually involve, including access and ground conditions. Our guide to building on a sloping section covers why those site factors drive cost.
How do you get the number right?
Start from what it would cost to build your specific house again, not a generic one. That means reflecting the actual specification: if you have built a high-performance envelope, triple glazing and a ventilation system, insuring at the cost of a code-minimum house of the same floor area leaves you unable to rebuild what you had. Add demolition and site clearance, consenting, and professional fees. On a difficult site, add what access and ground conditions would demand.
Then revisit it. Construction costs move, and a sum insured set several years ago is quietly out of date. A periodic review, and any time you make a significant change to the house, keeps the figure honest. Your builder can help you sanity-check what a rebuild would actually involve, which is a more useful reference point than an online calculator on its own.
What is the bottom line?
Agree in writing who holds contract works insurance before anyone starts, and check what it covers and who is named. Make sure cover transitions cleanly to house insurance at completion with no gap, and tell your insurer when the home is occupied. Then set your sum insured on rebuild cost, not market value and not your build price, reflecting your actual specification plus demolition, consents and fees, and review it periodically.
None of this is glamorous and all of it is cheap to get right in advance. If you are building in Nelson Tasman, arrange a consultation and we will help you understand what rebuilding your particular home on your particular site would genuinely involve.
Frequently Asked Questions
Does the builder’s insurance cover everything?
Not necessarily, and this is where assumptions get expensive. A builder will carry public liability and usually contract works, but the scope, the excess and who is named vary. Ask for a certificate of currency, read what it actually covers, and confirm whether you are named. If you are arranging cover yourself, tell your builder so nobody assumes the other has it.
What is the difference between rebuild cost and market value?
Market value is what someone would pay for the property including the land. Rebuild cost is what it would take to construct the house again, and it includes demolition and site clearance, consents, professional fees and current construction costs. They are different numbers and the gap runs in both directions depending on the market.
Why is underinsurance so common?
Because sums insured are set once and then quietly age. Construction costs move, the figure does not get revisited, and people carry a number set several years ago. Review it periodically, and particularly after any significant change to the house.
Should the sum insured match my build contract price?
No, and matching them is a frequent error. A rebuild after a loss involves demolition and removal of what is left, fresh consenting, professional fees and building at whatever costs apply at that time, none of which sat in your original contract in the same way. The rebuild figure is generally higher than the build price.
Does a high-performance home cost more to insure?
Not usually in premium terms, but its rebuild figure should reflect what it actually is. Insuring a Passive House envelope, its glazing and its ventilation at the cost of a code-minimum house would leave you unable to rebuild what you had. Make sure the specification is reflected in the sum insured.
What does the bank require?
Lenders generally require evidence of contract works insurance during construction and house insurance from completion, with their interest noted. Getting these in place is often a condition of drawdown, so line them up early rather than discovering the requirement at the wrong moment.
Research Report: Insuring a New Build in NZ
Read Full ReportContract works cover, policy transition and sum-insured adequacy.
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