Renovation and Home Design

Bankrupt Builder – Will The Insurance Be Enough?

I have previously talked about dealing with the mess when a builder goes bust.

To make the financial aspects clearer a worked example follows:

This is based on a contract for a house to be built for $300,000.

A typical building  insurance is 20% of the contract cost so it will be $60,000.

Assuming the builder becomes insolvent during the construction of the frame.

    • You should have already paid out
      • $15,000 (5%  Deposit)
      • $30,000 (10%  Base Stage Payment)
      • $45,000 Total Payments 
    • A new builder is going to charge more than the remaining $255,000 to finish the job as they will have to do quite a bit of extra administration and estimating. Say plus 20% ($306,000).
    • You have probably had some legal costs say $10,000.
    • The total cost of building the house is now:
      • $45,000 Initial payments for Original Builder.
      • $306,000 New Builder Cost
      • $10,000 Additional Legal cost
      • $361 ,000 Total.
    • You will be reimbursed up to $60,000 by the insurer so the total cost to you will be $361,000, which is $1,000 more than the original cost.


  1. As any new builder will probably charge a percentage on the remaining work its possible that if you are in the later stages of a build the insurance will be enough. If you are right at the start it may be best to walk away and start again with a new builder.
  2. If you have allowed the builder to charge more than the Standard Progress Payments there is more likely to be a shortfall in insurance money increasing the amount you will need to find.

For the next stage see Finishing Off, or to start at the begining go to If The Builder Goes Bust


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