Sustainable Home

Should I Have Builders Risk Insurance?

Builders risk insurance with woman's hands covering a home.

When we are working with a client who is considering having a custom home built or a major addition or renovation done to their existing home, this kind of insurance is high on our list of recommendations.  If there are a number of repairs or maintenance being done to a home, this type of insurance is sometimes worth considering.  First, let’s clear the name; this type of insurance is also called “Construction Insurance” but is better known as Builders Risk Insurance today. Secondly, it’s not a blanket “covers everything” kind of insurance. You buy what you, your contractor or construction manager feels would be the most viable policy. It all comes down to the comfort level for the parties involved in a construction project.

Builders Risk Insurance helps protect construction projects from major property damage like fire, explosions, lightening, theft, vandalism and some acts of God like a hurricane. Typically the General Contractor or the new Homeowner will purchase the policy and often anyone who has a financial interest in the project are included like a lender, some sub-contractors and possibly the architect or engineer involved the build. Sometimes this type of policy can contain coverage for additional living expenses, rental value, change order coverage and even equipment breakdown although this is generally only on a larger project.

I have never seem a policy where an act or war, contract penalty, employee theft or government action was included in the policy. One area I do get asked, does this type of insurance cover a poor design, substandard materials or poor workmanship?  I have never seen this kind of coverage available.

I have heard of insurance called a “Trades & Contractors” policy.  Sometimes this is bundled with a commercial general liability policy that is in place to cover liability in case of injury to a client, trade person or damage to the property. IN any of these policies, make sure there are no restrictions on coverage inception in the policy.

This kind of insurance has a “policy period” that usually starts when the construction contract is signed.  I have seen cases where a lender has stipulated the coverage starting date and confirmation that once the project is completed a  standard home insurance policy is ready to take over. There are some common stipulations; if the building is occupied before completion then I have seen a 60 days rider added to a policy.  Often, the occupancy permit will have some “to be finished” areas but still allow the permit to be issued and the homeowner to live in the home. In today’s building climate, getting materials to finish the project can be an issue, thus delaying some minor completion of the home and the building official will note this on his occupancy permit.

\Not all insurance companies write this type of insurance and not all insurance brokers are versed in packaging this specialty type of insurance.  We always recommend our clients get at least 3 quotes for insurance. It is amazing how different these policies can be with respect to coverage.

With the ever increasing cost of building a home or adding a major addition to an existing home, making sure that everyone is protected from a financial upheaval should be one part of a successful construction project.

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February 10, 2024
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