Builders Risk Insurance
When real estate investors acquire new investment properties to renovate, they should consider a Builders Risk (also known as Course of Construction) policy to protect their newly residential or commercial property. The investor needs to insure the property as well as building materials, equipment or fixtures waiting for installation. All of this can be insured during the construction or renovation of a building. Builders Risk policies allow for specific coverages for physical damage or perils named in the policy (fire, lightening, vandalism, hail, theft, etc.)
Who purchases Builders Risk Insurance:
- Property Owners
- Home Flippers
- Developers
- Contractors
- Lenders
- Architects
Builders Risk insurance policies are different because each renovation project is unique to the property insured. This includes coverage for remodels, new builds, installation of building materials, fixtures and equipment waiting for installation. Policies can be written under the investor’s name and many times the contractor can be added as an additional insured to the policy. The contractor or builder needs to have an insurable interest in the property for the additional insured endorsement.
The process for deciding the amount of coverage needed for Builders Risk is normally as follows:
- Building or Structure amount requested (reconstruction analysis by your Agent)
- Add Renovation Costs
- Add Material & Supplies
- Add Equipment on site or waiting to be installed (appliances)
Additional coverages “soft costs coverages” that can be added to Builders Risk:
- Rental Income
- Lost Sales
- Banks may require lienholder interests
- Taxes
When shopping for Builders Risk Insurance it is important to understand that these policies do not protect the building owner or contractor for injuries at the workplace. You can add additional coverage for Premises Liability. This coverage can be used to help the named insured pay for a medical claim to an injured party that can arise out of the owner’s negligence to avoid a lawsuit. The insurance carrier would investigate the claim and defend the insured or settle with the claimant. This coverage is different then General Liability that would need to be purchased by the General Contractor.
Builders Risk policies do not normally cover loss of income. Ask your Agent to add this important coverage. It can protect the investor if the project is delayed due to a covered property loss. This special coverage can be added and offers insurance protection for loss of income resulting from a delay by a covered loss when there was a rental contract already written. This coverage is normally available to the property owner and not the builder.
Policies are available in varying durations from six months to a one-year project. However, insurance carriers understand unexpected building delays such as weather, building permits or contractor’s availability could postpone the anticipated completion date. In the event of a delay, the insured should request an extension on the Builders Risk policy.
Builder’s risk policies end when the renovation projects are completed. It is important for the investors to make sure properties are insured with Builders Risk Insurance to avoid a large loss.
My final recommendation is, if the property needing to be insured is without a tenant/vacant and is not being renovated, please contact me for a Vacant Insurance Policy. This type of coverage can be used until the investor decides if they are going to renovate or quickly flip the property.
