What Is Builder’s Risk Insurance and Do You Need It?
Builder’s risk insurance can help protect you against property loss or damage before you have completed construction on your project. Most home builders, contractors, and others in the industry use this type of insurance as part of their risk management strategy. You may be wondering what builder’s risk insurance really is and if you need it too. Here’s everything you need to know about builder’s risk insurance, including who needs it and how much it costs (if anything).
Builder’s risk insurance definition
Builder’s risk insurance is a type of property insurance that covers the cost of repairing your property if it is damaged due to a defect in the original construction. If you have any doubts about whether or not you need builder’s risk insurance, consider that builders are often required to carry this type of coverage as a condition of their contract with the customer.
Common building contractors who need builder’s risk insurance
In general, if you are a contractor hired to build or renovate a residential home, you need builder’s risk insurance. This type of coverage is not required for contractors who do commercial work or building projects that do not involve homes. If your work is done in the course of one year or less, you may only be required to carry liability insurance instead of builder’s risk insurance.
Common homeowners who need builder’s risk insurance
- If you are building a home in your current location – it would be wise to get builder’s risk insurance because if the house were to burn down, this type of insurance would cover the cost of rebuilding.
- Homeowners who are renovating their homes may also need to purchase builder’s risk coverage.
- In these cases, the amount that is covered by the builder’s risk policy is typically determined by how much work has been completed on the home and what stage of completion it is in.
Effect on home ownership costs
Builder’s risk insurance can lower the cost of owning a home. It’s typically only necessary for people who are building or remodeling their homes, but it can be purchased by anyone who wants some extra peace of mind.
One downside is that builder’s risk insurance isn’t always required by lenders, so you might have to pay for it out-of-pocket unless your lender agrees to cover it.
Case study 1
One of the first questions asked by a potential homeowner is whether or not they will be required to have builder’s risk insurance. This type of policy provides financial protection for a construction company in the event that their work causes damage to other people’s property. As it turns out, this is an optional add-on that you can purchase as part of your homeowner’s insurance policy if you are going through the standard homebuying process.