Builders Risk Insurance

12 Replies

Does anyone have any recommendation for builders risk insurance.  I contacted one company and was quoted $6805 for 12 months.  I am new to this arena but this seems awfully high.  I have a home in DC I inherited and will renovate it and include a basement apartment.  Finding builders insurance is like looking for a needle in a haystack.

Hi Mimi,

I've taken out builder's risk insurance policies with the following agent.  The quote you received is ridiculously high, in my opinion.  Six months of insurance on a standard DC rowhome generally runs me $600-$800.  

Ian Higgins, LUTCF| Managing Partner & Principal Agent| Licensed in MD, DC, VA, PACongressional Insurance Associates | 12505 Park Potomac Ave Suite 220 Potomac MD, 20854Cell: (240) 308-1380 | Business: (240) 912-4150 | Fax: (301) 540-0895Email: [email protected] | Website: www.InsureCongressional.com

Hi @Mimi J. - It sounds like Robert has a solution for you. I was going to throw out that just across the river here in Virginia I was able to get a Vacant Home Insurance policy from Farmers (the policy was actually underwritten by Foremost Insurance, which I first heard about here on BiggerPockets) when I did my first rehab. The cost was $138 per month and was based on a value of the house (not the property, aka land + house). 

I was very clear with my Farmer's Agent as to the fact that it was a vacant home that was going to be extensively renovated. FWIW, Farmer's was the only one of the major insurance carriers who offered such a plan when I was researching it. Things could have changed since last year.

Thanks so much Robert and Doug for this information.  I am glad I listened to my instincts and decided to do more digging...this is how I came across this website. What is the difference between builders risk and vacant property insurance.  It seems to be used synonymously.   The property is currently vacant and will undergo a total gut within the next 2-3 weeks hopefully. I will make contact tomorrow.  Again much appreciated.

Hi Robert! 

Thanks for posting Ian's info! I'm closing on a SFH on Friday that I'm going to rehab and reached out to Ian, who delivered a great rate/policy! Thanks Again!!

Originally posted by @Mimi J. :

Thanks so much Robert and Doug for this information.  I am glad I listened to my instincts and decided to do more digging...this is how I came across this website. What is the difference between builders risk and vacant property insurance.  It seems to be used synonymously.   The property is currently vacant and will undergo a total gut within the next 2-3 weeks hopefully. I will make contact tomorrow.  Again much appreciated.

 Yes there is a big difference between builders risk and vacant property coverage. 

Vacant Property Coverage offers bare bones protection and can be effective for older buildings sitting idle or when very small self performed renovations are taking place. Fire, explosion, lightning, windstorm and hail damage are generally the only causes of loss covered. . The $ you get in the event of a loss is generally  replacement cost - depreciation which could be very tricky when the value is constantly changing due to a rehab. Because theft is not covered a robber taking the copper wiring or HVAC unit would not be covered. Vacant Property Coverage does not protect materials, tools, equipment, temporary structures, etc. used in the remodeling process before they become attached the house. 

Each contractor is responsible for their own stolen materials and for paying to fix damage to the building or other contractors property if caused by their negligence. For example, if a carpentry contractor falls off a ladder and into the uninstalled HVAC unit that carpentry contractor must rely on his insurance to pay.  This type of situation could lead to infighting between contractors and even contractors quitting. This could significantly delay the project being finished. Soft costs like mortgage, insurance, legal fees, taxes, etc. are all being spent during this delay.  

Builders Risk Coverage provides all perils coverage for all current property, materials, equipment, temporary structures, landscaping, etc, that are going to become a permanent part of the project regardless of if it is owned by the owner or one of the contractors.  You also have the option to build in coverage for soft costs during the increased construction time. A builders risk policy provides the assurance that property damage will be taken care of in a timely manner at the cost it takes to replace. This security is the reason many lenders require a builders risk policy. 

The cost will be somewhere between .2% or .3% multiplied by the final property value. This cost can be paid by the owner or the GC. Many builders risk policies require payment of the entire annual premium regardless of then the construction finishes. Vacant property coverage only affects the owner whereas builders risk is relied on by everyone so canceling isn't practical. This time frame starts as soon as any materials are brought on site and generally covers 60-90 days after completion to allow for checklist items to be finished and covered. 

You want to be sure that policy isn't just a  vacant home policy as Mike Flavin said. You could get burned. I previously underwrote insurance policies for this exact situation whereas you can have the option to add in coverage for building materials and have the option of replacement cost on the home versus actual cash value settlement.

Please, check your policies and make sure they are legitimate builders risk. Agents will sometimes try and fit these in as vacant policies -sometimes they don't know what they are doing, or because they want to get the policy count to increase their commission.

@Doug W.

Not to pile-on, but yes you do.  That's actually the first question I ask flippers right after I ask them do you have a builders risk policy, the next question is "is the insurer Farmers/Foremost" and I usually get a yes.  Then I have the bad job of telling them that they did not have a builders risk policy.  

Check with @Account Closed I'm not sure on his licensure, but if he is unable we are in all 50+DC+PR+VI, so I know we can help.

You'll find that cost on a builders risk is much lower, though it is frustrating to investors that it is not refundable.  

I would recommend you contact an agent familiar with your area. Underwriters appetite tends to change depending on the region so someone in your area would be much more familiar with the most competitive insurers and be knowledgeable about the intricacies of local laws etc. 

@Account Closed

I used to say that too.  But with "Big Data" it seems that the knowledge insurance agents have is easily accessible.  On builders risk if Granite State (part of AIG) is writing in the area, they are 9.5 times out of 10 the best.  If they are not writing in the area then Zurich tends to come in well.  Not a lot of underwriters on the renovators builders risk.  I just wanted to make sure if you could do the job that you did it.  

My recommendation is actually one agent that can provide nationwide coverage for all of your needs.  I find many investors spend lots of time worrying about the business needs for risk management and insurance, and they drop the ball on personal needs.  They really need one source to be responsible for their insurance needs.  If that agent is nearby, great.  But if you cannot find one that hits all of the areas that you operate in, time to call the agents that can.  

Originally posted by @Derek Lacy :

@Mike Flavin

I used to say that too.  But with "Big Data" it seems that the knowledge insurance agents have is easily accessible.  On builders risk if Granite State (part of AIG) is writing in the area, they are 9.5 times out of 10 the best.  If they are not writing in the area then Zurich tends to come in well.  Not a lot of underwriters on the renovators builders risk.  I just wanted to make sure if you could do the job that you did it.  

My recommendation is actually one agent that can provide nationwide coverage for all of your needs.  I find many investors spend lots of time worrying about the business needs for risk management and insurance, and they drop the ball on personal needs.  They really need one source to be responsible for their insurance needs.  If that agent is nearby, great.  But if you cannot find one that hits all of the areas that you operate in, time to call the agents that can.  

The vast majority of contractors and investors do most of their work in one state (two if near a border) with an occasional job in another region. The laws affecting insurance vary significantly by state and effect how contracts are written, how workers comp claims are handled, what coverage are required to operate in that state etc.  My recommendation was that It makes sense to select an agent with an expertise in the laws effecting the majority of your business. This does not mean that you need to find a new agent every time you do business in a different state.  I would actually recommend using one agent for all of your needs who understands the policies you currently have in place and the risk management goals of your company. 

An agency with a large amount of business in one area is much more likely to have a strong relationship with regional insurance carriers who are active in that market. The underwrites at these carriers often have more flexibility to adjust their price based on the risks specific to your circumstance and often provide the lowest premium. 

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