For several investors and homeowners, starting a fixer-upper project can be a thrilling experience full of hopes for turning an outdated property into a magnificent work of art. However, despite your excitement, the risk of suffering a financial loss is always present, whether it comes from unplanned weather conditions, construction site mishaps, or material theft.
It is possible to avoid all these with proper insurance, such as the builder’s risk insurance. This insurance offers crucial coverage while repairs are underway. Continue reading below, as this post equips you with everything you need to know about builder’s risk insurance.
What is Builder’s Risk Insurance?
In simple terms, builder’s risk insurance protects a structure while builders are currently working on it. While some refer to it as a course of construction coverage, others call it inland marine coverage.
A builder’s risk insurance can handle a wide range of projects, with standard coverages and optional endorsements to customize coverage for almost any construction project, whether it is residential or commercial. Consider discussing this coverage with a Baltimore hard money lender to weigh insurance options based on your goals. This risk insurance is also often important to meet banking requirements or other contractual obligations or to comply with government regulations.
Most of the time, a typical builder’s risk insurance doesn’t cover liability coverage and compensation for occupational accidents and injuries. Hard money loans may be a tool to support the insurance you have. However, it’s important to evaluate possible risks when using hard money loans to fund your project. You could also get stand-alone premises liability insurance for slip-and-fall incidents to support this course of construction coverage.
Difference of Builder’s Risk Insurance vs Construction Insurance
Construction companies need several insurance policies to reduce the risks that happen when they’re building projects. That’s why builder’s risk insurance and construction insurance are two of the most popular insurance policies contractors use. However, as interchangeable as these two policies may be, they offer separate distinct functions. The major difference between them exists in the coverage and protection they offer.
- Coverage
As we inferred earlier, a builder’s risk insurance is a certain kind of property insurance that protects buildings that are currently in the building or renovation stage. In addition, it also covers elements such as the supplies, machinery, and tools builders use during these construction projects.
Construction insurance, on the other hand, is an umbrella term that takes in various insurance policies the construction industry requires to cope with the risks of building projects. This insurance covers plans such as commercial auto insurance, tool and equipment insurance, professional liability insurance, workers’ compensation insurance, and general liability insurance.
- Protection
Builder’s risk insurance protects against losses from incidents such as fire, theft, vandalism, and other specific risks that can damage the building or its materials. On the other hand, construction insurance protects property owners from risks associated with accidents, injuries, property damage, professional errors, and liability claims during construction projects.
Because of this, contractors, property owners, and developers need builders’ risk insurance to protect their financial interests in construction projects against possible losses resulting from property damage during the development process.
3 Important Coverages of Builder’s Risk Insurance
When damage happens, a lot of misconception comes up around the exact coverage of a builder’s risk policy. When the time comes to evaluate damages and submit a claim, you may discover that the policy has unforeseen clauses that reduce or do away with benefits. That’s why you need to know the vital things this insurance covers, and here are three:
- Damage to Structure Itself
First, at the top of the list of what builder’s risk insurance covers is the damage present in the structure or building being renovated or constructed. These kinds of properties are more vulnerable to weather-related disasters like severe winds or rain, they’re more prone to damage.
This insurance also covers the building’s other components, which might not be seen during the property inspection. During the construction period, you have protection against all of these dangers by having a builder’s risk insurance.
- Building Materials
This is where builder’s risk insurance gets more interesting. Most of the time, contractors keep most building supplies and materials in trailers, temporary storage facilities, or other locations. Some even put them in the open.
So, you can imagine how hard it can be to keep the materials you bought safe from theft and vandalism because they are not an integral part of the structure.
We have good news for you — the builder’s risk insurance policy will also pay for any damages to the supplies and materials you store off-site that happen on the construction site.
- Temporary Living Expenses
Temporary living expenses do not fall within the category of direct construction expenses. However, these costs may mount up throughout construction, pushing your project well above your budget.
Final Thought
As a landlord or a property owner, you cannot put your dream apartment at risk just to save a few dollars. You need to get builder’s risk insurance as it is essential to protect the construction site of your home against damages you can’t control at times.
As much as the property isn’t in shape yet, it doesn’t mean fire and vandalism can’t damage it. Builders risk insurance is your savior here. So before you move into your future home, protect its present state with the coverage from this property insurance policy.