When most people think about insuring a building, they think only about how much it costs and what it takes to insure a completed building. What about all the buildings that are under construction? What if a natural disaster wipes out an entire building that was 75% completed? Fortunately for contractors and builders, there is a type of insurance that will insure a building that is under construction.
Builders Risk Home Insurance
Insurance for Buildings Under Construction
Most of the time, a typical homeowner will not have to worry about insurance on a home while the home is being built. Traditionally, the builder or developer of the land will be the party that is responsible for insuring any sort of structure on the property while it is in the process of construction.
Builder's Risk Insurance
Traditional home insurance policies are broken up into standardized forms throughout the United States (HO2, HO3, HO5, HO8), and these policies are specific to completed homes. There is also a type of policy that is designed specifically to insure homes under construction. This type of home insurance policy is referred to as a Builder’s Risk insurance policy.
The name for this policy was derived from the fact that, more often than not when a building is under construction, it is the builder’s responsibility. Thus whether or not a builder chooses to insure the property and the work that has been done is his or her “risk”.
Builder's Risk Coverage
While a home is in the process of being built, it receives coverage for many of the same perils that a traditional home insurance policy would cover. In fact, many builder’s risk or home insurance building policies will insure the uncompleted structure on an open peril basis. This means that the structure will be insured from all possible perils, unless a peril is specifically excluded from the policy. Each company is going to have a different list of exclusions, but the most common exclusions are:
It is important to note that builder’s risk insurance is not as standardized as most not-under-construction home insurance policies, and as a result coverage can vary significantly from company to company. Although many companies offer open peril coverage, some will be more specific and list the types of perils included in the policy. The coverage received is very dependent on what company is chosen to insure the property.
Builder's Risk Coverage Sections
If you’ve ever had a traditional home insurance policy, then you know that most home insurance policies come with six standard sections of coverage: Dwelling, Other Structures, Personal Property, Loss of Use, Medical Payments, and Liability. This is quite different with a builder’s risk policy. A home insurance building policy will typically only insure the uncompleted structures that are being built as well as tools on site that may be owned by the builder. In addition, a certain amount of liability insurance may also be included in the policy.
Despite the fact that home insurance for structures being built does not contain as many additional coverage options as a traditional home insurance policy, the coverage for what matters most (the dwelling, or the actual building) is pretty close to the same. The same coverage characteristics of home insurance that apply to the dwelling of a traditional home insurance policy seem to translate to a builder’s risk insurance policy with most companies.
