Need clarification on builder's risk policies
Hello BP family: I'm doing some lending and am getting conflicting information on builder's risk policies. Need some advice on this very confusing topic. My rehabbers often don't want me to speak with their insurance agent/companies.
1) Someone indicated that builder's risk often DOES NOT cover the existing structure...thus if your contractor is doing a light rehab and the house burns to the ground, the existing structure is not covered. True or False?
2) Someone else told me to make sure to insure 80% of replacement value on a builder's risk policy. If #1 is true, then what would be the purpose of the 80% if the policy doesn't cover the existing structure?
I'm looking for advice on how to counsel my borrowers on the type of insurance that will protect both our interests. Most of my borrowers are buying pre-60's constructed homes and replacing/upgrading electrical, plumbing, HVAC, flooring, etc. The homes are always vacant until they are resold. Spoke to a nice guy today who reminded me that in addition to whatever dwelling, builder's risk policy is in place I also need to make sure the contractors' working on the house have workers comp policies..whew....a lot to know here.
As an aside, I have a loan now where the rehabber is going to be removing the roof and adding a second story. We are waiting for the permits to be approved (house will be VACANT and unoccupied for at least 2 months). In this instance we were advised that we need a vacant dwelling policy until the work commences and then the policy will have to be switched to builder's risk.
Any advice would be appreciated.