Not all homeowners and contractors rely on financial institutions to fund their course of construction project in order to get the job done. For many of us, it’s not out of the ordinary to take out a construction loan to build or renovate a home. But, some house flippers and homeowners are able to self-fund without involving a bank.
Considering that most lenders require proof of builders risk insurance before closing a loan, self-funders might be tempted to think they don’t need coverage if they’re not getting one. But it couldn’t be further from the truth.
Do either of these situations sound familiar?
Dean is a businessman who’s been flipping houses on his own dime for a few years. You saw his name when perusing recent construction permits for new leads. When you approach him about builders risk insurance for his construction projects, he brushes you off. He says that it’s not a worthwhile expense because he has been doing this for a while now and hasn’t had any losses, so why start now?
Anita is a homeowner who’s having her custom dream home built. She wants to avoid going through the bank for a loan, so she is relying on her savings and the sale from her previous home. She has budgeted everything down to the last nail and is excited to get started. When you approach her about builders risk insurance to protect the new construction, she rebuffs you, saying she can’t afford the premium to protect her project.
So, how do you overcome this reluctance? Consider these three strategies.
- Play the “What if?” Game
What if something happens? What if lightning strikes the project and starts a fire that destroys the wood frame construction? What if a thief breaks into the site to steal copper pipes or a vandal ruins your hard work?
Protecting clients from the unexpected is what insurance is all about, and most of the time, you don’t see a devastating loss coming. In Dean’s case, it sounds like he’s had a run of good luck. But if he’s paying for these flips out of his own pocket without the protection of a builders risk policy, he’s also on the hook for repairing damage and replacing stolen or destroyed items should a loss occur. The risk of loss is especially high during a remodeling project, where you never know what kind of old faulty wiring might be behind the walls. Put it plainly. Ask Dean if he had a $100,000 project (which is 70% done) and it burned down, could he afford another $70,000 to redo it? Our guess is: probably not.
- Emphasize Value Over Cost
It can be challenging to convince clients of the need for builders risk insurance when they keep coming back to the cost of premium.
In Anita’s case, while dollars and cents are going to be very important, re-shuffling the budget to allow for payment of an insurance premium is her best bet. Having a builders risk policy in place from the start can ensure that Anita won’t be on the hook for damage from typical risks like theft, vandalism, fire and more. That makes it the most effective way to protect the home (and her bank account) from those pesky “what ifs.” It will also ensure that should her funding dry up and she decides to secure a loan, she already has an established policy to show the bank.
Waiting until construction is already well underway or until the money is gone can make it much more difficult to secure coverage. It could also cost your client two to three times more than they would’ve spent on the builders risk insurance policy in the first place. Remember, the starting minimum premium is $375 in most areas.
- Lean Into Prospecting
Want to get ahead of conversations like these? First, you could initiate discussions with existing clients to see who’s planning to build or remodel. Since you already have established relationships, they know you as a reliable insurance counselor who has their best interests in mind. Introduce them to the robust protection available with the Builders Risk Plan insured by Zurich and counsel them on what they could be missing compared to other policies or no coverage at all.
For prospects, you need a broader game plan. Research permits in your area to see who’s planning to build. Get active in local homeowner groups or even make friends with real estate agents for tips on the newest properties. And when it comes to self-funding builders, you might even spot them at your local hardware store looking for supplies (or trying to scout contractors). Practice some grassroots marketing techniques and post your business cards or our custom sell sheet on those bulletin boards.
Ready to talk about builders risk with your current clients and prospects? Download and brand our Customizable Consumer-Facing Builders Risk Sell Sheet and leave behind something memorable in your next meeting.
This is intended as a general description of certain types of insurance and services available to qualified customers. Your policy is the contract that specifically and fully describes your coverage. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.
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