Builder's Risk Insurance: What it is and why you need it
Humor aside, if you're planning to build a house in the near future make sure your property - and even you and your contractors - are properly insured with Builder's Risk Insurance before breaking ground.
Most insurance companies offer builders insurance. If you hire a contractor or builder don't assume they have all the insurance coverage you need. A good builder or contractor will be licensed, bonded and insured, and be listed with their state. For example, Washington state, where I live, makes available all sorts of business information online (see Washington State Department of Labor & Industries). Still, no matter how seemingly respectable or highly recommended someone comes be sure to verify their credentials at the state level.
While you'll want to follow the advice of your insurer when purchasing a policy for your project, here are a few points to consider:
What exactly is a builder's risk policy?
A builder's risk policy differs from, say, a homeowner's policy in that its purpose is to cover any damages or losses during a construction project. It covers a home while it's under construction - not just the house as it's being constructed but also other things, such as:
- Theft of tools
- Damage to equipment
- Loss of or damage to materials on and off site
- Natural disaster
- Injury to you or anyone visiting or working on site
A separate homeowner's policy generally comes into play once the house is finished.
What are typical terms for a builder's risk insurance policy?
Terms will vary depending on individual needs but in my experience builder's risk insurance policies extend at least 12 months or more. I've personally had builds lasting anywhere from eight to 24 months without my insurance company batting an eye (my insurer has always been USAA). It's not a bad idea to query your potential insurer to find out if there are any issues in extending a policy if that should become necessary. Even simple delays can happen without warning.
Do you need builder's risk insurance?
Yes! Some professionals might disagree with me here as when, say, a contractor can provide solid proof of insurance coverage. And, sure, there's no doubt it's a good sign when someone you want to hire is properly insured - they should be; but I'd personally not take a risk that someone else's insurance company would fully cover any serious damages, losses, or injuries on my job site.
My biggest concern has always been a job site injury. I want insurance for myself, my wife, anyone I hire to help me, as well as any friends, even potential interlopers, including vandals and thieves. Truth be told tools and materials can usually be replaced quickly without a lot of financial loss. However, a potential injury, and they're always unforeseen, could not only end your dream of building a house, it could cripple you financially. For this reason you need to have your project insured.
How expensive is builder's risk insurance?
Policy premiums for builder's risk insurance will vary mainly because of the wildly different values in property across the country. I live in one of the most expensive regions of the United States, the Pacific Northwest between Seattle, Washington and Vancouver, British Columbia and the coverages for my projects have fallen between $300,000-$1,000,000 with premiums as low as $500 per year. I find this refreshingly reasonable.
If you've made it this far I'm hoping I've convinced you to get a builder's risk insurance policy for your upcoming house building project. The good news is that if you're convinced it's not going to cost you much to have a little peace of mind while your house is under construction. Policies will vary across the country, from region to region, and from insurer to insurer, so be sure to shop around and go with an insurer you feel will be reliable and isn't going to break the budget.