SS152: What is Builders Risk Insurance?

If you are building or renovating a property, your lender may require builder’s risk insurance. In this episode, Charles discusses what builders’ risk insurance is, and when an investor might use this type of insurance.

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Talking Points:

  • Builder’s risk insurance, also known as “course of construction” insurance, is a property insurance that covers structures that are under construction or renovation.
  • It can be purchased by either the general contractor or the property owner, and it covers all stages of the renovation or construction process; from the start of the project to the receipt of a Certificate of Occupancy.
  • This type of policy will cover both the contractor and the property owner from financial loss due to unexpected events at a property during its construction or renovation. These unexpected events would include; fire, lightning, hail, explosions theft, vandalism, and acts of God (like hurricanes).
  • Builder’s risk insurance is really for any party that has a financial interest in a construction or renovation project; including the property owner, general contractor, subcontractors, lenders, architects, etc. Most lenders (especially hard money and bridge lenders) will require builder’s risk insurance when funding a project.
  • Builder’s risk insurance is designed to cover structures and buildings that are undergoing construction or renovation. It also covers; materials, supplies, and equipment (on site, in transit, or even at other locations).
  • If any property damage causes a delay; a builder’s risk policy could cover; lost sales, rental income, additional interest on loans, and real estate taxes.
  • Policyholders are able to customize their policy for the specific project by getting coverage extensions to add protection for; debris removal, temporary structures, construction forms, scaffolding, and more.
  • There are several coverage exclusions to a builder’s risk insurance policy; the main one being liability. Others include; wear and tear, employee theft, mechanical breakdowns, damage due to faulty design, and workmanship. In many cases, you can add some of these by getting an extension (or an additional policy), but they are not normally covered in a builder’s risk insurance policy.
  • The cost of a builder’s risk insurance policy depends on a number of factors; the project type, the location, the construction type and materials, the expected completion date, the amount of coverage, the expertise and the experience of the contractors, their claims history, and the deductible amount.
  • When you are planning a new construction project or a property renovation; it is important to clarify what party will be obtaining the builder’s risk insurance policy, in addition, it is important to verify that all parties with an investment in the project are listed as “additional insured” in the policy; including the general contractor, the property owner or developer, the subcontractors, and the lender.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what is builder’s risk insurance.

Charles:
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Charles:
Builder’s Risk Insurance, also known as course of construction. Insurance, is a property insurance that covers structures that are under construction or renovation.

Charles:
It can be purchased by either the general contractor or the property owner, and it covers all stages of the renovation or construction process from the start of the project to the receipt of the certificate of occupancy. This type of policy will cover both the contractor and the property owner from financial loss due to unexpected events of the property during its construction or renovation. These unexpected events would include fire, lightning, hail, explosions, theft, vandalism, and acts of God like hurricanes. Builders risk insurance is really for any party that has a financial interest in a construction or renovation project, including the property owner, general contractor, subcontractors, lenders, architects, and more. Most lenders, especially hard money and bridge lenders, will require builders risk insurance when funding a project. Builders risk insurance is designed to cover structures and buildings that are undergoing construction or renovation. It also covers materials, supplies, and equipment.

Charles:
That equipment could be onsite in transit or even at other locations depending on the policy. If any property damage causes the delay. A builder’s risk insurance policy could cover loss, sales loss, rental income, additional interest on loans and real estate taxes. Policy holders are able to customize their policy for the specific project by getting coverage extensions to add protection for debris removal, temporary structures, construction forms, scaffolding, and more. There are several coverage exclusions to a builder’s risk policy, the main one being liability. Others include wear and tear, employee theft, mechanical breakdowns, damage due to faulty design and workmanship, and many cases. You can add some of these by getting an extension or an additional policy altogether, but they’re not normally covered in a builder’s risk insurance policy. The cost of a builder’s risk insurance policy depends on the number of factors, the project type, the location, the construction type and materials, the expected completion date, the amount of coverage, the expertise, and the experience of the contractors, their claims history, and the deductible amount.

Charles:
When you’re planning a new construction project or a property renovation, it’s important to clarify what party will be obtaining the builder’s risk insurance policy. In addition, it is important to verify that all parties with an investment in the project are listed as additional insured in the policy, including the general contractor, the property owner or developer, the subcontractors and the lender. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments, and potential show [email protected]. If you’re interested in actively investing in real estate, please check out our courses and mentoring [email protected]. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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