Builders Risk Insurance
Seven Tips for Insuring Your New Construction and/or Addition
Building a new home, office or adding onto an existing structure is exciting. However, before the lenders will lend the money, builders risk insurance must be in place.
Individuals and/or businesses looking to construct a new building or add onto an existing structure must purchase builders risk insurance. Not only does it make sense financially, but most lenders will not approve a loan without builders risk insurance. Essentially, builders risks insurance provides property coverage for a building during the course of construction.
Purchasing builder's risk insurance is a little trickier than purchasing a straight property policy. Having the right underwriting information upfront will make the process easier. To ease the pain of soliciting quotes and purchasing builders risk insurance, follow these seven practical tips:
- Find the right agent/broker: It is important to find a broker or an insurance agent that is familiar with this type of coverage. All specialty coverages have nuances that an experienced agent or broker has the knowledge and ability to offer sound recommendations. An inexperienced agent may not be familiar with the policy intricacies.
- Pinpoint project costs: Among other factors, the project cost is a key factor in determining the rate and premium. Make sure the insurance agent has the most up-to-date cost estimates.
- Have a detailed project description: Be prepared to provide information such as number of stories, type of construction and location. In addition, the insurance agent will also need to know about the job's contractor. Be prepared to provide information such as the number of years the contractor has been in business, whether or not they had recent losses and if they have previous experience on this type of construction project.
- Provide a copy of the contract: The insurance broker will review the insurance-related terms of the contract to ensure that they are not on the hook for more than they bargained for. Additionally, they will advise if the contract holder is liable for items that are not covered by an insurance policy and thus will require the help of an attorney. It's best to have both an attorney and an insurance agent review the contract before signing it. It will help mitigate the possibility of becoming contractually liable for something that is not covered under the builders risk policy.
- Construction beginning and end dates: In addition to the beginning and end dates insurance agents will need to know when the various phases begin and end. Some phases, such as blasting a foundation, provide more risk than others such as sheet rocking a wall. The insurance company wants to know when they are most at risk.
- Safety, safety, safety: To help keep the premiums as low as possible, be sure to point out all the construction safety features. Features such having a security service patrol the construction site at night or fencing the construction area to prevent general public access are looked upon favorably. These safety measures allow insurance companies to apply the appropriate credits for safety.
- Inquire about soft costs: Be sure to ask about soft costs coverage. Soft costs are expenditures that are not directly related to building the structure, such as accountant fees, attorney fees, etc. Not all insurance companies will provide coverage for soft costs, but it won't hurt to ask.
Once the structure is completed, the builders risk insurance is no longer necessary as builder's risk only covers the building during the course of construction. Now it's time to purchase a more common property and liability policy.
Click here for a sample of a generic builders risk application form.
