Home renovation can be an exciting project, but it comes with its own unique set of risks. It can increase the likelihood of theft or damage, and also increase the potential for liability issues. That’s why it’s important to properly insure your home, regardless of whether you are living in the home or not during renovation. In this article, we’ll cover Builder’s Risk insurance for your home remodel or renovation project, whether you’re doing the work yourself or hiring contractors.
What is Builders Risk Insurance?
Builders Risk insurance financially protects you from damage or loss to your home or the materials used during your renovation, remodel or new build. These policies typically have a timeframe of 3 months, 6 months, 9 months and a year. Extensions are available upon request.
Your homeowners insurance policy will likely have exclusions for renovations. So, it’s very important you have a Builders Risk policy or you risk having an uncovered claim and potentially a financial disaster.
Always talk to your agent before any type of renovation. Depending on your situation, your homeowners insurance may be adequate and a Builders Risk policy not required.
Some common factors are:
- Is the remodel interior finishes and external painting only?
- Are there minor changes to exterior doors, windows, skylights?
- Will there be repair, replacement or removal of load bearing walls?
- Will there be foundation work such as underpinning and/or dewatering?
What Does It Cover?
A Builders Risk policy is going to provide many of the same coverages your homeowners insurance policy does such as damage from windstorm/hail, fire, theft, sewer backup and more. Just like your homeowners policy, some coverages will come standard and others such as water backup and earthquake will need to be added.
Materials that are to be permanently affixed to the home. This could be flooring, siding or roofing material. However, there are some exclusions such as employee theft and materials left out in the open.
For policy coverage limits you’ll pick a limit for the existing structure and also for the renovation. For example, if your existing home is $350,000, and your renovation cost is $150,000, you’ll have total coverage of $500,000.
These policies are highly customizable so you’ll want to make sure to work with your agent to find the best fit for you.
What is Not Covered?
Liability coverage is not included. This will need to be provided by your contractor. If you are your own contractor, you’ll need to purchase a commercial insurance policy to ensure you have the appropriate coverage.
Coverage for tools and scaffolding is likely to be excluded but may be purchased as an additional option.
Remember, coverages that are typically optional on a regular homeowners policy are also optional on a Builders Risk policy such as:
- Sewer/Water backup
- Earthquake
- Valuable items – Jewelry, firearms, paintings, antiques etc.
How Much Does It Cost?
On average you’re looking at around .25% of the total value for an annual policy. So, if the home and the project cost together are $500,000, the cost of an annual policy would be $500,000 x .0025 = $1,250.
This can vary widely depending on your location, coverage options and insurance history. Also, if you choose a shorter term policy such as 3 or 6 months your cost is going to be different.
Pro tip: Many Builders Risk policies don’t offer a pro rata refund if your project is finished early. So, it may be to your advantage to error on the short side for your project completion and get an extension if you need to.
Conclusion
A home renovation project can be a daunting experience, especially when it comes to insurance. Hopefully, this article has provided you with the knowledge you need to confidently begin your renovation journey.
Speak with your insurance agent and assess your coverage options based on whether you will be living in your home or not during the renovation, and whether you are doing the work yourself or hiring contractors. When done right, proper Builders Risk coverage can help ensure that you experience a successful renovation project from start to finish.
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