Construction is a process that involves technical solutions, physical work, and various risks. From accidents on the construction site to damage to the surrounding area, every stage can bring unexpected losses. This is why the question of whether construction insurance is necessary is being asked more and more often. And if so, in which cases is it mandatory, and when is it only a recommendation?
Construction insurance in Lithuania is not just a matter of good will – in some cases, it is strictly mandatory under applicable laws. On the other hand, even when insurance is not mandatory, it can help you avoid significant financial losses. In this article, we will explain how to find out if you need insurance, what it covers, and how to choose it responsibly.
Why is it important to insure yourself during construction?
It is almost impossible to avoid risks during construction—even if the work is carried out responsibly, there is always the possibility that something unexpected will happen. For example, structural elements may be damaged by an unexpected storm, or neighbors’ property may be damaged due to negligence.
Insurance during construction is not only protection against unforeseen events, but also a way to protect yourself from financial liability when damage is caused to third parties. Both small individual construction projects and large objects have one thing in common – any mistake can cost thousands of euros or even more.
Another important reason is legal regulation. In some cases, insurance is a prerequisite for construction to be considered legal. If an accident occurs during construction and there is no insurance, the responsibility lies with the builder or contractor.
When is construction insurance mandatory?
Construction insurance is mandatory when work is carried out that poses a greater risk to builders, the environment, or people. According to the law, insurance is required in the following cases:
If new construction, reconstruction, major repairs, renovation (modernization), or demolition work is being carried out. In such cases, it is necessary to have both construction insurance and civil liability insurance.
Insurance is also necessary when dealing with cultural heritage buildings, even when carrying out technical or conservation work. The risks are often even greater in such objects, and the liability is more stringent.
The insurance obligation also depends on how the construction work is carried out:
- If all work is entrusted to a single contractor, they must take out an insurance contract.
- If the work is carried out on a farm basis (i.e., the owner carries out the work himself or hires separate craftsmen), the builder must take out an insurance contract.
- If a mixed method is used, with part of the work being carried out by the owner and part by contractors, the builder is also responsible for insurance.
Insurance policies are also mandatory when submitting construction completion documents, without which it is not possible to properly register a building or object.
When is construction insurance not mandatory?
Insurance is not necessary in all cases. There are situations where it is only recommended but not required by law.
For example, when simple repair work is carried out that does not change the structural design and does not create additional loads.
Such work can be carried out without a permit and, therefore, without insurance.
Insurance is also not necessary when constructing or demolishing a simple building (e.g., a farm building or greenhouse) whose area, height, and purpose do not exceed the established standards.
When only equipment installation work is carried out (without physical intervention in the structures), insurance is also usually not required.
However, even if the law allows you to do without insurance, it is worth assessing the risks – if the value of the work is high or the construction site is close to other buildings, additional protection may be a wise decision.
What are the types of construction insurance?
Construction insurance is generally divided into two main categories, which are often required by law but also logically complement each other. Each of them protects against different risks, so it is best to have both.
Construction work insurance
This is a type of insurance that covers all losses related to the construction process. The object of insurance is both the building under construction and the materials or equipment at the construction site.
The purpose of this insurance is to compensate for damage caused by unexpected and sudden events:
- fire or explosion,
- natural disasters (rains, storms, earthquakes),
- theft or vandalism,
- damage due to unintentional errors.
It is important to note that construction insurance is only valid for the construction period specified in the contract and only for those objects that are clearly included in the insurance contract. If construction is delayed, you should arrange for an extension of the insurance.
Civil liability insurance
This is another essential part of construction insurance. It is designed to protect against damage that may be caused to third parties, both individuals and legal entities, during construction. For example:
- if a neighbor’s basement is flooded due to incorrectly designed drainage,
- if an object falls from scaffolding and injures a passer-by,
- if an object near the construction site is damaged (e.g., part of a fence).
Civil liability insurance amounts are usually regulated – they cannot be lower than certain limits. However, depending on the size of the project or the risks involved, it is worth choosing a higher amount of coverage.
Additional insurance coverage
In some cases, builders choose additional coverage to further reduce financial risk:
- Warranty period insurance – protects against defects that become apparent after completion of construction.
- Construction site equipment and machinery insurance – if you have expensive equipment on site, it is worth insuring it separately.
- Employee accident insurance – although formally a separate area of insurance, it is very common in construction.
How to choose the right insurance option?
When choosing construction insurance, it is important to consider the nature of the specific project, its value, duration, and risks. There is no one-size-fits-all policy – the best solution is the one that best suits your situation.
First, you should determine:
- What types of insurance do you need? If you are building from scratch, you will need both construction and civil liability insurance.
- What is the value of your construction project? The higher the value, the higher the insurance amount should be.
- Where is the construction taking place? If there are residential buildings or public infrastructure nearby, the liability risk increases.
- How long will the construction take? The insurance period must correspond to the actual work schedule – if the work is delayed, you may need to extend the insurance.
It is also worth consulting with independent experts – they can help you avoid choosing overly expensive or insufficient insurance, assess the risks objectively, and select the insurer with the best terms and conditions.
Comparison table of types of construction insurance
| Type of insurance | What does it cover? | Who should take it out? | When is it necessary? |
|---|---|---|---|
| Construction insurance | Damage to the construction site due to unexpected events: fire, storm, theft, collapse, etc. | Contractor or builder (depending on the method of execution) | Mandatory for construction, reconstruction, demolition or modernization works |
| Civil liability insurance | Damage to third parties (neighbors, passers-by) due to incidents caused during construction | Contractor or builder (depending on the form of work organization) | Mandatory in all cases where construction work may pose a danger to others |
| Warranty period insurance | Defects that become apparent after completion of construction during the warranty period | Additionally recommended for the builder or contractor | Optional, but useful when constructing new buildings or transferring objects to the customer |
| Insurance of equipment and machinery | Losses due to damaged or stolen construction equipment and tools | Most often drawn up by the contractor or equipment owner | Recommended for large or long-term projects |
Conclusion and advice
Construction insurance is not just a formality – it protects you from significant losses, legal liability, and even forced suspension of construction. Although it is mandatory in some cases, in other situations it is simply a wise choice. It is worth finding out what requirements apply to your specific project and assessing all possible risks.
The most important thing is not to leave your financial security to chance. Insurance during construction helps you feel more secure and, in many cases, avoid legal problems.
Need help?
If you need help checking whether your construction project requires insurance, choosing the most suitable insurance option, or handling the related documents, contact the independent construction experts at stav.lt. Our team is ready to help ensure that your construction process is smooth, legal, and safe.