Builders Risk Insurance 101

You are building a home, congratulations! You need it insured, so we insure it with a home policy, right? As it turns out, there are many types of policies for a home, and you need to have the proper one in order to be protected.

Builder’s Risk Insurance will cover a structure while it is either being built or renovated. This ensures that if something happens to the structure during construction you are protected and don’t lose everything that you have invested into the property during construction.

What is builders risk insurance?

Let’s talk about Builder’s Risk Insurance, what it is, how it protects you, and why it’s important to you as an insurance consumer. When you are building a new home, or even renovating an existing home/structure, many homeowners wrongly assume that a normal home insurance policy will cover their house while it’s being built or renovated, when in reality, a home under construction or renovation is generally not covered under a standard home insurance policy. You will want to protect the building materials and any existing structure while construction is ongoing. The way to insure the property is with a Builder’s Risk policy which protects your existing home and any improvements you make to it.

Example:  You purchase a home and want to do a full renovation of the home to update it and make customizations. The cost of the home before the renovations was $150,000; after renovations the value will increase to $300,000 after all updates are completed.  

• *Without Builder’s Risk Insurance* Insurance provider declines claim due to the home being vacant and under renovations. 
  
• *With Builder’s Risk Insurance and a deductible of $3,000* Insurance provider pays to rebuild the home up to the agreed value after renovations were to be completed: $297,000 after your deductible.  
  

Why do I need builders risk insurance?

You need Builder’s Risk Insurance to protect you in the event of a loss while a home is being built or renovated. During these times, homes can be especially prone to losses due to the nature of the work being done. If you take out a loan to build or renovate a home, the bank or mortgage company you acquired the loan from will require you to carry a Builder’s Risk policy. This ensures that if the home were to burn to the ground and everything was destroyed that you as the consumer won’t just walk away and abandon the project and not pay back the loan amount. Like any loan, banks want to make sure their investment is protected, and if something happens, they will get their money back. Having a Builder’s Risk policy also ensures that if the worst does happen, you don’t have to gamble with a large investment and you can rest assured that you will be able to recoup your losses. 

Here are a few examples of the types of losses that are generally covered under a Builder’s Risk Policy.  

• Fire 
  

• Lightning 
  
• Wind/Hail 
  
• Explosions 
  
• Theft 
  
• Vandalism 
  

• Acts of God, like Hurricanes (Flood and earthquake is generally excluded) 
  
  
  Why are builder's risk policies expensive?
  
  As I have said in earlier portions of this article, homes that are either under construction or going through major renovations can be prone to major losses. This can be due to several reasons 
  
• Easy access to materials for vandals/thieves 
  
• Wiring issues leading to a house fire or explosion 
  
• Distance to the Coast, or high-risk fire zones 
  
• Any number of things can happen to a home while it is under construction and because of this increased risk, insurance providers will charge a higher premium to cover their risk. 
  
  Let’s take our home that is being fully renovated as an example again. If you are renovating everything in the home including the wiring and plumbing, that means that there will probably not be anyone living in the home, and it will be vacant. Because the home is vacant, local teenagers decide to go into the home while it is being renovated and decide to steal $10,000 worth of lumber that is being used in the renovation. 
  
• *Without Builder’s Risk Insurance* Insurance provider declines claim due to the home being vacant and under renovations. 
  
• *With Builder’s Risk Insurance and a deductible of $3,000* Insurance provider pays $7,000 after your deductible to replace the stolen lumber.  
  
  How can I buy builders risk insurance?
  
  A Builder’s Risk Insurance policy can be purchased similarly to any other personal lines insurance policy. You will need to speak to a licensed agent and have them quote the policy for you. Many insurance carriers offer these types of policies in addition to their standard home insurance policies or dwelling policies. There are also Specialty Carriers that cater specifically to these types of policies and can be more competitive at times. Some builder’s risk policies can be paid on payment plans while others must be paid in full in advance and most are generally non-refundable in the event of a cancellation. This can be carrier specific, and it is always best practice to confirm with your agent/carrier how your specific policy works. 
  
  Resources : What does Builder’s Risk Insurance Cover? 
  
  
  The contents of this article are for informational purposes only. You should not act or refrain from acting based on this information without first consulting a Goosehead licensed agent at [email protected]. We disclaim all liability for actions taken or not taken by you based on the contents of this article which is provided "as is." Goosehead makes no representation that this content is error-free.