First off, insurance that covers a building under construction can be called two different things: "Builder's Risk Insurance" or "Course of Contruction Insurance." This type of insurance is almost always for homeowners, business owners, or contractors. Depending on the terms on the construction contract, the homeowners or contractor will be responsible for obtaining builders risk insurance. Many more established construction companies or contractors have theser terms written into their basic contracts. Always make sure to look for this when signing a contract for a construction project. This liability someones falls on the shoulders of the homeowner, so be sure to communicate about necessary coverages if this is the case.
Homeowners need to understand that a builders risk policy does not provide any liability coverage. Stand alone liability insurance can be obtained in additional to builders risk coverage or you can have the general contractor lists you as an additional insured on their general liability insurance policy.
Why Do I Need a Builders Risk Policy?
A typical homeowners insurance policy does not cover a vacant home that is under construction. You will need a builders risk policy to cover the project. The builders risk policy will cover your home and any additional structures on site. Perils like theft, fire, vandalism, wind, lightening, and explosions are all covered. Flood and earthquake insurance would need to be purchased in addition to the builders risk policy.
How Much Coverage Do You Need For a Project?
You will want to work with your contractor and figure out the total cost of the project. If the project is a remodel, you will need to have a certain amount of coverage for the existing structure and additional amount of coverage for any additions to the home. Think of all the costs associated with building the home like labor, materials, architect fees, contractor payroll, overhead, etc.
Any changes that happen during the course of construction that would increase the cost of construction should be reported to your insurance agent, incase you need to increase the amount of coverage for any insured structure. This is very common with new construction projects.
What Impacts The Cost of Builders Risk Insurance
Type of project- Whether it is a new build from the ground up, a remodel, or installation these different types of projects impact the pricing of a builders risk policy. Major remodel projects are typically the most expensive, due to the greater risk of loss when there is already an existing structure. Any minor cosmetic remodels will not be very expensive compared to a project with serious structural changes.
Location– The properties physical location has a major impact on the pricing for a builders risk policy Homes in areas that are prone to wildfires, hailstorms, tornadoes, etc. are going to be a lot more costly than certain inland homes.
Type of construction- Wood frame construction is going to be more prone to damage from a fire than a project with fire resistive materials.
Amount of coverage needed- The amount of coverage needed for the builders risk policy is going to be based off the total completed value of the project. As we mentioned above, talk with your contractor about all of the costs associated with the project so you can ensure you do not under insure your home.
Adapted from an awesomely informative share from fellow agency Don Williams & Associates Insurance. Check out www.barberinsurance.com for all of our offerings and to apply for a quote today!