Construction Insurance or builders risk insurance protects a new home against loss while it is under construction. New homes under construction or homes being renovated are quite vulnerable to loss, including job site theft.
Having home building insurance is required by all construction lenders.
A homeowners insurance policy for a finished new home is required by all mortgage lenders.
New homes are subject to many different risks while under construction. They may catch fire, be damaged by high winds, vandalism, theft, or other extraordinary events or circumstance beyond your control as a homeowner or owner builder or that of the General Contractor.
The General Contractor may be responsible for any losses caused by his own negligence, but the owner is responsible for most other losses. As an owner/builder, you are both the general contractor and the owner. Construction insurance protects against some of these losses.
Coverage
Builders risk insurance usually guarantees against losses due to fire, vandalism, lightning, wind, and similar forces. It usually does not cover earthquake, flood, acts of war, or intentional acts of the owner. Coverage is typically during construction period only. Be absolutely sure the policy has general liability coverage in case a third party gets injured on the property.
Who buys builders risk insurance?
It is usually bought by the owner of the land that the new home is being built on, but the general contractor constructing the new home may need to buy it if it is required as a condition of the contract.
Renovations & Remodeling
If the building project involves home renovation or a home addition to an existing house, the owner’s existing homeowner insurance may cover the work under construction, obviating the need for builders risk insurance. Homeowners insurance policies vary.
Mortgage lenders (construction lenders) will require a builder’s risk policy to be in force prior to loan closing.
If you already own the land, you should have builders risk insurance in force even before the loan closes.
If you have started construction, even if you have a pile of sand or dirt on the property, or just a hole for the basement dug, you are vulnerable to loss.
I don’t mean to scare you, but I know of two separate instances where children playing on the construction site were fatally injured, one by suffocation in sand pile and another by falling in the basement excavation hole.
Construction sites are like a “child magnet”. What child can resist?
Construction sites are also like a magnet to thieves.
You should also try to get theft coverage as part of a builder’s risk insurance policy, even if it has a rather high deductible.
Theft insurance is usually NOT available to professional general contractors but ironically, it can often be added as a rider to a Builders Risk Insurance policy if you are an owner/builder.
Where to Buy a Builders Risk Insurance Policy
Since Builders Risk Insurance is basically Homeowners Insurance without personal property (stuff) coverage, the most logical place to buy it is through your current insurance company (companies) that handle your current Homeowner Insurance policy or Renters policy, and or your current automobile insurance.
A Builders Risk Insurance policy usually converts to straight Homeowners Insurance when the house is completed. If your agent(s) cannot write (handle) Builders Risk Insurance, he or she should be able to direct you to someone who can.
Home Building Insurance is not easy to get, so read How to Get Builders Risk Insurance.
Carl Heldmann
