Builder’s risk insurance for the homeowner; a complete guide

During a construction or renovation project, builders’ risk insurance, also known as course of construction insurance, protects property and construction materials.

The policies for builders risk insurance for homeowner vary greatly from one provider to the next. Read the quotes from insurers carefully and consider working with an insurance broker to ensure to get the coverage required.

What is builders’ risk insurance?

Builders risk insurance is a type of home construction insurance that protects financially during the construction process. A construction project can range from new home construction to home renovation. Builder’s risk insurance, also known as construction loan coverage, home construction insurance, or renovation insurance, is frequently required by construction lenders.

Who needs it?

Anyone with a financial stake in a property being built or renovated, including contractors, needs a builder’s risk insurance:

  • Building owners.
  • Architects or engineers involved with the project.
  • Contractors or subcontractors.

When multiple parties are involved in a construction project, the general contractor is usually the primary insured and purchases the builders risk insurance for homeowner policy. Additional insureds will include the building owner and subcontractors. Depending on the terms of the construction contract, the building owner may be required to purchase the policy.

Property it covers

A builder’s risk insurance policy protects buildings and structures in the process of being built. It also serves as a safeguard:

  • Materials
  • Supplies
  • On-site equipment, in transit, or other places
How does it work?

Builder’s risk insurance covers property damage and loss scenarios. Its purpose is to safeguard construction sites from theft, vandalism, and natural disasters. The policy may cover damage to construction materials temporary structures such as fencing, subdivision signs, scaffolding, and landscaping.

Factors that determine the cost 

Just as the finer points of project can affect the final result, so can the price paid for insurance.

  • Project type

Different types of projects can affect the cost of builders risk insurance for homeowner. New construction, remodeling excluding existing structures, installation, and remodeling including existing structures are the most common types.

  • Location

Builder’s risk insurance rates location is crucial. This is because the risks vary depending on the location. Builder’s risk insurance costs are higher in areas prone to wildfires, hail damage, tornadoes, hurricanes, heavy rainstorms, and other natural disasters.

  • Construction Type

The higher the construction quality, the more likely it to withstand hazards. A project built with fire-resistant materials, for example, is more likely to be rated favorably. Wood-frame construction, on the other hand, is more prone to fire and has a shorter lifespan.

  • Expected Completion Date

The expected completion date of the project is another factor that influences the cost of the builder’s risk insurance.

What does it cover?

Builder’s risk insurance, in general, protects property on construction sites from damage or destruction caused by fire, wind, vandalism, vehicle collisions, or other mishaps. Some policies also cover off-site storage of construction materials and cleanup costs such as debris removal.

However, unlike many other types of builders risk insurance for homeowner, there is no standard template for a builder’s risk policy. As a result, coverage varies greatly depending on the provider.

  • Materials covered if damaged or destroyed

 All builder’s risk insurance policies will cover the structure being built or renovated, as well as materials stored off-site that are damaged or lost while being transported to the construction site.

  • Policies

However, the following items not included by default in policies.

  • Documents and data
  • Temporary structures
  • Soft costs
  • Other covered costs

In addition to physical damage or loss, compensation provided for defensive measures taken due to the damage, such as particle removal and pollutant cleanup. The policy may even cover the costs of recertification if repairing a building that has previously received green energy certifications.

  • The value of the property

Some insurance companies only pay for the damaged or lost property’s actual cash value, while others pay for the property’s replacement value. Larger payouts, but higher premiums, are usually the result of the latter.

  • Covered causes of loss

All-risks coverage in builders risk insurance for homeowner policies, which means they cover property damage caused by anything except what the policy excludes.

What is not covered by this insurance?

The following are some examples of losses frequently excluded from builder’s risk insurance policies:

  • Employee theft: Make sure to get a commercial crime policy to cover employee theft.
  • Work vehicles: Commercial auto insurance is required to cover work vehicles.
  • Damage from earthquakes and flooding: Earthquake and flood damage is not covered by builder’s risk insurance policies, unlike most climate damage. Separate insurance needed for these.
  • Manufacturing defects: General liability insurance can cover defense and settlement costs if someone injured on the job site. 
  • Ordinary wear and tear: To be covered by insurance, a loss must caused by something unexpected.

Advantages 

  • Broad property coverage
  • Endorsements give more coverage options.
  • Flexible coverage limits
  • Attractive policy terms
  • Minimize claims for the homeowner.

Thing to remember 

  • Construction homes are not covered by homeowner’s insurance.
  • If constructing a new home or remodeling an existing one, the builder’s risk insurance is needed to protect the investment.
  • The general contractor or the property owner is responsible for providing builders risk insurance.
  • Be sure to review the construction project contract to see who is responsible for acquiring the builder’s risk insurance.

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There is an additional financial risk to not having a builders risk insurance for homeowner. One could be held liable for damage to building materials, equipment, and partially completed structures during construction. If having a house built by a builder, make sure they have the appropriate insurance. If they don’t, purchase it. During construction or renovation, make sure there is the right home insurance.

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