Builders Risk Insurance 101

Building a new home or renovating an existing one? Don’t overlook purchasing insurance during the construction process! A standard home policy will not cover construction—instead, you need a builders risk policy. Builders risk insurance ensures that if something happens to the structure while under construction, you are protected and don’t lose everything that you have invested into the property.

Why do I need builders risk insurance?

You need builders 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 risk 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 builders risk policy. This ensures that if, for example, the home were to burn to the ground and everything was destroyed, you won’t abandon the project and neglect to pay back the loan amount. Like with any loan, banks want to make sure their investment is protected.

Having a builders 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’ll be able to recoup your losses. The following are a few examples of the types of losses that are generally covered under a builders risk policy:

• Fire
• Lightning
• Wind/hail
• Explosions
• Theft
• Vandalism
• Acts of God, like hurricanes (flood and earthquake is generally excluded)

Are builders risk policies expensive?

Homes that are either under construction or going through major renovations can be prone to major losses. Because of this increased risk, insurance providers will charge a higher premium. The rates an insurance company charges will also fluctuate depending on your location and type of construction work being done.

If you are building or renovating everything in the home (including the wiring and plumbing), it’s likely nobody is living there. Because the home is vacant, theft can happen more easily. With builders risk insurance, the provider will agree to pay anything over your deductible to replace any stolen items.

How can I buy builders risk insurance?

A builders 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 insurance companies that cater specifically to builders risk insurance and can be more competitive. Some builders 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 company-specific, and it is always best practice to confirm with your agent how your policy works.

Keep in mind that purchasing builders risk coverage is time-sensitive. If you wait to secure coverage until partway through construction, you may still be able to get a policy, but you’ll likely encounter stricter underwriting that could delay you further. Reach out to your Goosehead agent today if you think you need builders risk coverage to find the right coverage at the best price.

Resources: What does Builder’s Risk Insurance Cover?