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 Posted: Tue Jul 06, 2010 11:52 am Post subject: Construction insurance for your home |
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We have a new country home under construction. Is it possible to get it covered now?
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Rockin-beast
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| Posted: Tue Jul 06, 2010 4:27 pm Post subject: |
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Yes, definitely. The type of coverage you will need is called a "Builders Risk" policy. This will cover the home during the course of contruction. It will also normally cover materials onsite, that have not yet been installed, against theft. This is an important coverage to have.
It is very possible that the contractor that is building the home for you has already purchased this coverage on your behalf, as part of the contruction contract. But, do not take that chance. Contact the builder and confirm they have builders risk coverage in effect for your home.
The builders risk policy is designed to only provide coverage during the course of construction and will provide coverage until the home is completed. You will need to puchase a homeowners insurance policy prior to moving into the home.
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InsuranceDude
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| Posted: Wed Jul 07, 2010 6:36 am Post subject: |
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Thanks for your reply!
I'm sure the contractor has a liability policy, does he need this builders risk policy in addition? What do I do if the contractor doesn't have it already? Should I ask him to stop the construction work till he gets it in place?
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Rockin-beast
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| Posted: Wed Jul 07, 2010 5:22 pm Post subject: |
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That will depend on what your contract with the builder states. If he is supposed to carry the builders risk coverage and has not done so, that would be a problem that would need to be addressed immediately.
However, if there is financing involved in this project, the bank would not likely have funded it unless builders risk coverage was in effect. So, you are likely OK.
Just give the builder a call and make sure the coverage is in effect. If it is not, find out who's responsibility it is to get it and make sure it is taken care of right away.
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InsuranceDude
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| Posted: Fri Jul 09, 2010 6:38 am Post subject: |
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Understand, however, that if you are just now applying for a Builder's Risk policy, you will pay an entire year's premium with no recourse to unearned premium. If your construction is due to be complete within the next few months, it may not be worth the trouble or expense. But it would cover a catastrophic loss to the uncompleted construction, since the policy is written based on the completed value of the dwelling.
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MaxHerr
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| Posted: Fri Jul 09, 2010 11:05 am Post subject: |
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| You may come across some tricky situations with your contractor. That's why it's all the more important to check if the contractor's policy has this "additional insured" clause. It really protects in the event you face any legal lawsuit. |
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steven
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| Posted: Fri Jul 09, 2010 2:15 pm Post subject: |
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| Quote: | | check if the contractor's policy has this "additional insured" clause |
This would apply to a contractor's liability policy (which is different than a Builder's Risk policy), but is an important point.
A builder's risk policy provides protection against loss of the uncompleted structure (or even the completed structure for up to 90 days after final inspection). It also provides protection for materials and tools/equipment stolen from the job site.
When I was about to start a major home remodel a few years ago as "owner-builder", hiring my own subcontractors rather than hiring a general contractor, I inquired about a BR policy for my job. The project was budgeted at about $250,000 (actually ran to about $270,00), but the premium for the policy was more than $2400.
I decided the premium was too high for the coverage, since my homeowner's would also cover a large portion of a total loss claim, and my real concern was theft of materials more than anything else. I knew that I wouldn't have more than $4000-$5000 of loose lumber or other materials on-the-ground at any one time, and if it all disappeared, oh well.
As it turned out, materials were not "on-the-ground" for any length of time. We had our primary lumber drop just a few days before framing, and basic framing took just one day. Roof trusses were loaded directly onto the framing. Drywall was delivered, carried into each room and mostly installed within only a day or two. So my premium savings went into some other aspect of construction.
But when a developer is building dozens or hundreds of units and millions of dollars of materials are being delivered, and homes are in various stages of construction, a builder's risk policy is really a must.
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MaxHerr
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| Posted: Fri Jul 09, 2010 2:58 pm Post subject: |
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My experience is that a Builders Risk policy is not that expensive. No more than a standard homeowners insurance policy would be for the same value. I understand this can vary depending on your location. My experience has also been that most builders risk policies can be cancelled on a pro rated basis and any unearned premium can be refunded. Again, not all BR policies are this way, but many are. I would look for one that can be cancelled mid term, if the project is completed, and the premium can be refunded.
I have never seen a homeowners insurance policy that will cover the structure of the building or the materials on site for a home under construction. Liability will typically extend to a new home in the course of contruction, but thats it. Again, this may be different in other parts of the country, but that is how it works in my area.
Also, most companies prefer to issue the Builders Risk policy when the ground breaks and if you get too far into the project they often will not issue a policy at that time.
Some companies also offer change order coverage for over runs. A common amount of coverage for this is 10% of the insured value.
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InsuranceDude
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| Posted: Fri Jul 09, 2010 3:27 pm Post subject: |
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| Quote: | | I have never seen a homeowners insurance policy that will cover the structure of the building or the materials on site for a home under construction. |
If the discussion is about brand new construction from the ground up, this is true. But every homeowner's policy will cover losses to the structure during a remodeling project the same as they would cover a completed structure. Materials on the ground is a different matter.
Depending on the locale, BR for an "owner-builder" such as my situation in 2007-2008, is generally a surplus-line event, and the three policies I looked at all had a no-refund-of-unearned-premium clause. They were all in the general vicinity of $2400 for a twelve-month term.
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MaxHerr
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| Posted: Fri Jul 09, 2010 3:33 pm Post subject: |
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That's absolutely correct Max. I think the conversation started with a new contruction project. But, you make a good point about remodeling projects.
Fully earned premium is common in surplus lines. That's a lot of money. We fortunately have several standard markets available to us in our area, for this type of coverage. However, they do require that all work be done by licensed contractors.
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InsuranceDude
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| Posted: Fri Jul 09, 2010 5:12 pm Post subject: |
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It's also a standard market here in California for licensed contractors. Just not for unlicensed owner-builders.
Enjoy reading your various posts. Full of accurate information.
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MaxHerr
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| Posted: Fri Jul 09, 2010 5:23 pm Post subject: |
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Thanks Max... That's nice of you to say that.... 
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InsuranceDude
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| Posted: Sat Jul 10, 2010 6:21 am Post subject: |
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You should consult with an agent. An agent has the knowledge and expertise to suggest ways according to specific situations. Certain factors will play a key role e.g. cost of construction, time needed to get the work completed, financial condition etc.
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Juanita
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| Posted: Sat Jul 10, 2010 7:19 am Post subject: |
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It's truly important for the home owner to understand that the damages caused to his property are not a liability for the contractor or any of his workers till their negligence is proven. Any investment that the home owners makes has to be protected under the Builders risk coverage.
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