The area known as the Eastern Shore here in southern Alabama ranks as the #1 fastest growing area in the state! It goes without saying that this is prime territory for new homeowners, home builders and contractors alike. If one of those three categories describes you, then it’s very likely that you can find some useful information in this post.
First, let me start by addressing the readers that may also be new homeowners. The type of coverage that I will discuss in this post is not just for the home builders and contractors. If you are the homeowner, and you are having your home built, then you are eligible for purchasing builder's risk insurance as well. The basic coverages and exclusions will remain the same. However, if you own the policy and something happens to the structure of the home or the materials during the construction process, then the insurance company will pay you and not the home builder or contractor. It’s always important to ask if your builder carries this coverage before the construction process begins
So, here is the lowdown on what builder’s risk insurance is, and what it covers.
What is Builder’s Risk Insurance?
Builder’s Risk Insurance is a form of property insurance mainly used by contractors and home builders. It can cover just the structure of the home itself, or if elected, it can also cover the materials on the site where the home is being built. There is a stated coverage limit on the policy which is determined by evaluating the total cost of the completed project. That includes materials and the cost of labor. These policies can be written in 3 months, 6 months, or 1 year policy periods, so as to fit the length of each individual job. If the job runs longer than anticipated, the policy period can be extended.
What Is Actually Covered?
Before I get into what is and what is not covered, it is important for me to point out that these policies can vary from company to company. You should talk to your agent first before assuming that you have a coverage that you don’t actually have.
- Wind (
I have said it once and I will say it a thousand times, check with your agent about YOUR policy. These coverages are not 100% standard across the board for all builder’s risk policies. I’m just trying to get your feet wet with some of the simple ones. There are many exclusions on these policies. An easy example would be if you left material out in the open air, and a storm came along that left them ruined. More than likely this will be excluded from coverage because you left the material uncovered. A few of the other exclusions can include, but are not limited to:
- Employee theft
- Mechanical Breakdown
- Flood (Can be purchased in some areas)
What About My Subcontractors?
Builder’s Risk Insurance covers the home builder, or contractor that purchased the policy and their materials used in the construction process. Each subcontractor used on the project must be required to have to carry their own insurance.
What Are Some Other Policies I Should Purchase?
I would like to reiterate the fact that builder’s risk covers the structure and/or the materials used in the construction process that will become part of the finished product. That being said, these bullet points might do a better job at illustrating what I am trying to say:
- It will NOT cover injuries. You will need to purchase a Worker’s Compensation policy for that.
- The tools you use on the job site are not covered. You should talk with your agent about scheduling your higher value ones if you would like coverage.
- Be aware that this is not an E & O (professional liability) policy. If you mess up, you are NOT covered under a builder’s risk policy.
Like I said above, this blog is written strictly to get your feet wet in understanding what this coverage can protect you from and who would be most likely to purchase it. It is best to talk with your agent to see what coverages are most important for you to have.
Make Insurance Great Again,
Here are some other blog posts that are relevant to this one:
For the business owner → Business Owner's Policy
For the homeowner → Homeowners Insurance