If you provide home construction services, your goal is obviously to deliver a quality product to your clients. You will have a budget and face the requirement to do the project correctly and on time. Whatever materials you need to do your job will be essential assets that will help you guide the project through to completion. Therefore, you’ll have to protect these items from the moment you start work until the moment you finish. A special type of commercial insurance called builders’ risk insurance will help you do so. 

All home construction projects differ. At times, you might not do new construction but instead do renovations to an existing property. While perhaps less costly or extensive than new construction, renovations still have cost risks. Therefore, they need builders’ risk coverage as much as any other project. Consider what you need to do to get the right coverage.

What is Builders’ Risk Insurance? 

Standard property insurance or homeowners insurance usually provides very limited (if any) coverage for new construction. These policies generally only cover a completed building. As a result, the party that is doing the construction work will need to buy a builder’s risk policy. If you are a contractor who does this for a living, then you will likely need coverage for each job you do. If you are a homeowner who plans to self-renovate, then you will also need a policy for the duration of the project. 

Understanding How Much Your Policy Will Pay You 

You have the option within your builders’ risk policy to tailor it to your satisfaction. As a result, you can adjust your policy limits to ensure that you receive adequate compensation for damage to your project materials. 

In most cases, your policy will pay the replacement cost value (RCV) for damage. The property’s replacement cost is the completed, new value of the home. This is the sum that you would need to rebuild the property following a total loss. Still, this cost might vary be different depending on whether this is new construction or renovation. 

When you build an entirely new property, you will likely be able to easily estimate the cost of the materials you will use in the project. The cumulative cost of these materials will be the replacement cost value of the home. You should also remember to factor in additional costs of labor and equipment, too. 

However, with renovations projects, your will likely have to buy a higher amount of coverage than you would for a new building. That is because you will not only insure the new construction, but also must insure the existing structure. You will have to include the existing structure’s replacement cost value and then add to it the value of the new construction. Damage to a renovation project might not remain confined to just the area where you are working. It could spread to the rest of the property. Often it is the builders’ risk policy that will cover both these damages. 

Limits to Builders’ Risk Coverage 

Even if you have replacement cost coverage on your renovation project, then there is no guarantee that your policy will cover 100% of a claim’s costs. Though it might be very comprehensive, limitations will still apply. 

Policy deductibles will require you to pay for a certain cost of your damage on your own. Your insurer will reduce the final claim settlement by the amount of the deductible. So, if you have $5,000 in damage to the property, and a $1,000 deductible, then you pay the first $1,000 and your insurer will pay the remaining $4,000. 

Additionally, your policy might not pay for all types of damage from all types of events. Flood damage, intentional damage by the contractor or normal wear and tear often won’t have coverage. Still, you can work with your agent to adjust your coverage to your benefit so that you can minimize losses as effectively as possible.