More on Home Insurance
More on Home Insurance
If you’re building a new home or making extensive renovations on an existing structure, you’ll need builders risk insurance to cover the property during the course of construction.
Published January 1, 2021
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Building a new house involves multiple steps and difficult decisions, including finding a plot of land to build on, planning and designing the home, hiring a general contractor, and figuring out how you’re going to pay for all of it.
Depending on the specifics of the construction project’s contract, you may also be responsible for buying builders risk insurance to cover things like storm damage and vandalism during the course of construction. A typical homeowners insurance policy doesn’t cover dwellings under construction, so you’ll need a builders risk policy to ensure the project is fully covered in the event of a loss.
Depending on your insurance company, you may be able to add supplemental builders risk coverage to your existing homeowners insurance policy, potentially saving you the hassle of having to take out a second line of insurance.
Homeowners insurance doesn’t cover homes that are under construction
If you’re building a new home or remodeling an existing property, you’ll need builders risk insurance to cover the project throughout construction
Builders risk insurance is either provided by the general contractor or the property owner
Be sure to review the construction project’s contract to see who is responsible for acquiring builders risk insurance
Simply put, homeowners insurance is intended for completed homes, while builders risk insurance is designed for homes under construction. A house that’s being built from the ground up is exposed to different risks than a fully enclosed and occupied home, and therefore will require a more specialized form of insurance.
Homeowners insurance and builders risk insurance also differ in terms of what type of coverage is included in each policy. Homeowners insurance provides coverage for the home itself, personal belongings, loss of use, and personal liability. Builders risk typically only offers coverage for the home under construction and building materials. General liability insurance should be provided by the builder.
The particulars of who is responsible for providing which type of insurance will depend on the construction contract. Your builder will likely have general liability insurance to cover any liability issues related to the build, but it’s not always their responsibility to buy the builders risk policy as well.
If your general contractor doesn’t carry builders risk insurance, then that means it’s on you to ensure the project is adequately covered in the event of property damage or theft. If you’re financing the build with a construction to permanent loan, your mortgage lender will likely require proof of a builders risk policy throughout the course of construction.
If your contractor is responsible for acquiring builders risk insurance, you’ll likely need to provide your lender with a copy of the policy. Be sure to review the limits of your contractor’s builders risk policy to make sure the property is fully covered throughout the construction process.
Builders risk insurance covers any structure or building materials on the insured building site or materials offsite that have yet to be transported to the insured premises. Your policy limit is generally determined by the project value or construction budget, which may include both building materials and labor costs.
Builders risk policies are typically offered in three, six, nine, or twelve month contracts. The length of your builders risk policy term will depend on the scope of the construction project. If you’re doing a renovation or adding a room onto your home, you may only need a three month builders risk policy. If you’re constructing a new home from the ground up, you’ll likely need at least a twelve month policy term.
One thing to note when deciding on a policy term is the first three months of builders risk premiums are usually nonrefundable. If your project is expected to be completed in three months but you suspect it could drag out, consider the six month option instead so that you can be reimbursed for any unused premiums between the three and six month mark.
A standard builders risk policy should cover the construction of your home and any additional structures on site against the following:
Like homeowners insurance, the cost of builders risk insurance will vary based on specific factors related to the construction project and the specific risks associated with the property. The risk of the construction project is often low at the beginning of the project — as there isn’t much home to insure — and rises over time as the home is being built and the risk changes.
There are generally four factors that can impact the cost of your builders risk policy:
The geographic location of the construction project is perhaps the biggest factor that impacts the cost of builders risk insurance. The more susceptible your home is to damage from coastal storms, tornadoes, or wildfires, the higher your policy premiums will be.
Are you constructing a new home, or are you renovating or remodeling an existing structure? Major remodels are generally the costliest type of project to insure since you’re covering the existing structure in addition to the newly remodeled portion.
If you’re constructing or remodeling a home with high quality materials, your insurance costs will be higher
The faster the construction project takes to complete, the lower your insurance premiums will be since the amount of time the property is exposed to various risks is shorter. Projects that drag out generally lead to more downtime, leaving the site unattended for longer periods and increasing exposure to different risks.
Pat Howard is a homeowners insurance editor at Policygenius in New York City. He has written extensively about home insurance cost, coverage, and companies since 2018, and his insights have been featured on Investopedia, Lifehacker, MSN, Zola, HerMoney, and Property Casualty 360.
Pat has a B.A. in journalism from Michigan State University.
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