“Risky Business” may be one of the best-known movies in cinema history, but when it comes to securing financing and constructing your log home, there’s nothing entertaining about taking risks. In fact, before a mortgage company will fork over the money for your loan, they’re going to want to make sure you’ve taken the necessary steps to protect their investment—and that protection starts with “builders risk” insurance.
What is builders-risk insurance?
Simply stated, it’s a specific form of property insurance that protects homeowners and builders from liability on a construction site from loss due to theft, vandalism and accidental loss, damage or destruction. It may indemnify against loss due to flooding, sinkholes, earthquakes or other disasters, but be sure your insurance provider spells out your specific coverage in writing so there are no surprises.
What does it cover?
Most builders-risk policies cover all the components that will be considered part of a finished home (i.e., logs, studs, foundations, roofing materials, etc.). It sometimes will also cover temporary structures used for staging the construction process, as well as construction forms, like scaffolding. It might also cover “soft costs,” which are expenditures related to but not part of the actual structure, such as attorney’s fees. But again, get it in writing.
What doesn’t builders-risk insurance cover?
Of course it doesn’t cover intentional acts perpetrated by the owner, such as arson, but it also doesn’t provide liability or workman’s comp insurance. Separate policies are needed for each of those. It also doesn’t cover contractors’ equipment while onsite. A separate policy often called a “tools and equipment floater” is required for that.
When does coverage start?
It depends on the provider. With some companies, such as Schwaumburg, Illinois-headquartered Zurich North America, coverage starts the minute materials are on the job site and continues throughout the construction period. Other providers may not initiate coverage until the home is dried-in and able to be locked.
How much does builders-risk insurance cost?
That depends on a host of variables, including the two biggies: the cost of your finished home and where it’s located. Your best bet is to call several providers for a free, no-obligation estimate. According to Omni Builders Risk in Winder, Georgia, builders-risk policies are less expensive than standard homeowners’ policies, because the latter are long-term plans designed to cover not only the structure, but also the contents of the home as well as personal injury. To keep your premiums as low as possible, be sure to pinpoint any extra safety features, such as security fencing, floodlights or security patrol.
What do you need to apply for builders-risk insurance?
Be prepared to provide a lot of documentation, including but not limited to a detailed description of your home (number of stories, level of finishing materials, etc.); information about your general contractor/builder’s experience, a copy of the sales contract, estimated start/completion dates and proof of security.
What happens to the insurance policy when construction is finished?
Oftentimes, you can convert it to a standard homeowners policy. Or the policy will end, and you can purchase homeowners insurance with another company.