Because structures that are being worked on carry different risks than ones that are completed, there are specialized types of insurance, such as builders risk, that offer protection during the construction phase.
- Builders risk insurance covers gaps in coverage if something goes wrong during construction or remodeling
- You should consider builders risk insurance if you are building a new home or undertaking major remodeling
Most people are familiar with property insurance, which protects your home or apartment after you move in.
But what about insurance for the structure before someone lives there, when it’s under construction? Who is responsible for insuring a home while it is being built? What about a house that is in the middle of major remodeling work; how is the portion under construction covered?
Builders risk insurance — which is also called in the course of construction insurance — is a specialized type of inland marine insurance that covers in the course of construction. Because structures that are being worked on carry different risks than those that have already been built, there are specialized types of insurance to protect the property owners throughout the construction phase. The most common options for coverage are a stand alone builders risk policy or an endorsement to a personal lines policy.
If you are thinking of building or adding to your home, here’s what you should know about builders risk insurance.
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Builders Risk Insurance Covers Gaps
The biggest reason to get a builders risk insurance policy is that without it, you might be exposed to gaps in coverage if something goes wrong during the construction or remodeling of your home. A builders risk policy protects against losses and damage that might not be covered under a homeowners insurance policy.
Builders risk insurance may cover contractors and subcontractors while the property is being built, and can potentially provide coverage for other mishaps like stolen building materials and tools.
Some carriers can add an endorsement to a homeowners policy. This type of coverage could extend outside the structure to things like landscaping or a newly paved driveway. Let’s imagine your new home is just about finished, and your contractor’s truck slips out of gear and rolls down your new lawn, taking out several newly planted trees, the sod and your brand-new mailbox.
Because builders risk insurance covers the construction phase of a project, it even covers losses before the building goes up. For example, if your newly poured foundation is damaged by a storm, it will need to be fixed or replaced before the rest of the house can be built.
Who Needs a Builders Risk Insurance Policy?
If you’re building a new home, you should ask your insurance agent if a builders risk insurance policy is right for you. Some contractors may provide this coverage for the building in the course of construction. You may want to have your insurance agent review the contract to determine what coverage the contractor is providing and what coverage you will need.
Builders risk insurance may be needed for larger remodeling projects, particularly ones in which the residence will be unoccupied during the demolition and construction process. Most standard homeowners insurance policies carry limits on the number of consecutive days that an insured home can be unoccupied (usually somewhere between 30 to 60 days). If you ‘re planning an extensive home renovation process and the home will be unoccupied or vacant for an extended period of time, you should talk to your agent about the right coverage options for you.
A Builders Risk Policy Could Protect Your Premium
Construction areas come with higher levels of risk than a finished home. Work areas — especially those with dangerous tools and areas exposed to the elements — present injury hazards.
A builders risk policy is designed to cover risks that homeowners insurance might not. One benefit to carrying a separate policy is that any claim wouldn’t affect your other accounts. By filing a claim (if one is needed) on the builders risk policy rather than your homeowners insurance policy, you won’t have to worry about your premiums going up.
My Contractor Has Insurance. Do I Still Need a Builders Risk Policy?
First, you absolutely should make sure that anyone who is working on the construction of your home is insured.
Contractors may carry liability coverage and workers compensation coverage for any of their employees, but it’s good practice to ask how subcontractors are covered. Some of these individuals may be self-employed and it’s important that everyone who is working on your home is covered by insurance. A common request is to ask for a Certificate of Insurance.
Next, yes: Even if your contractor has insurance, you should at least talk to your insurance agent about whether you need builders risk insurance coverage. Some municipal authorities require certain parties to carry builders risk insurance for construction projects, so check with your local building inspector’s office to make sure you’re in compliance with their rules.
How Much Does Builders Risk Insurance Cost?
There are many variables that go into how much you’ll have to pay for builders risk coverage. Between those variables and state-level insurance requirements, amounts can vary dramatically from place to place — and from one project to another.
If your home construction project is using unusual or hard-to-source materials or cutting edge technology — or if the site presents building challenges (such as a house overhanging a cliff) you may have additional need for specific coverages.
Since these policies are designed to be in place only during construction, policies may be offered in 3, 6 and 12-month terms.
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The Bottom Line
Building a new home or engaging in extensive remodeling efforts means that your home will be a construction site for a while, with all of the risks that entails — which is why it’s important to look into all of your options and make sure you’re fully protected.
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