For homeowners, contractors or businesses who have never experienced a loss, or for those embarking on their first home remodeling or commercial renovation, there can be a tendency to see builders risk insurance as an unnecessary expense. One way to help prospects recognize the value of purchasing adequate course of construction coverage is by presenting a scenario.
The Builders Risk Plan insured by Zurich classifies remodeling into three eligible categories — basic remodel, minor structural remodel and major restructuring. To help you illustrate the importance of remodeling insurance, consider these three real-life examples (one for each category of our remodeling appetite). In each situation, the value provided by builders risk insurance far outweighs the cost to purchase a policy.
Scenario 1: Basic Remodel
Basic remodeling projects tend to be relatively small in scope.
Let’s imagine that Hannah Homeowner wants to renovate the five bathrooms in her million-dollar home. Although her insurance agent strongly suggests builders risk in addition to her homeowners policy, Hannah declines coverage. She says she doesn’t need to buy any special insurance coverage because her contractor is experienced and she doesn’t see any real risk.
Her contractor is remodeling all five bathrooms at the same time. The project is on schedule, and most of the materials have been delivered to the job site and are awaiting installation.
Carl Contractor realizes that he doesn’t have all the supplies needed to continue with the installation so he leaves the premises to pick up additional items. Unfortunately, while he is gone, two $1,500 tubs are stolen out of the garage.
Had Hannah purchased builders risk coverage, she could have filed a claim to recover the cost of the stolen tubs. However, because Hannah declined builders risk coverage, she may now face out-of-pocket expenses to replace the stolen tubs not covered by her homeowners policy.
Scenario 2: Minor Structural Remodel
A minor structural remodel is more complex than basic, involving projects such as replacing windows, doors, HVAC systems, or electrical components in a home or commercial structure. This type of project involves the potential for greater risk, as structural work could impact the building’s integrity.
Burt Businessman was planning a buildout of his company’s new office location. Recognizing the importance of having adequate insurance coverage, Burt secured builders risk insurance through his agent. During the remodeling project, a fire broke out. While the fire was ultimately contained, it caused major delays, setting the completion timeline back significantly. Due to the delays, Burt needs an additional six months of insurance coverage. On top of that, he must pay additional architect and engineer fees, and construction loan interest.
Fortunately, Burt’s agent secured soft costs coverage as an endorsement to his builders risk policy beforehand. Thanks to his coverage, he has extra protection for the recurring costs associated with the loss (architect fee, construction loan interest, etc.). His agent also requested a policy extension for his remodeling coverage, which was approved by underwriting. Without proper insurance protection, Burt would’ve been on the hook for all of these unforeseen expenses.
Scenario 3: Major Restructuring Remodel
A major restructuring remodel involves substantial risk. Major structure remodeling work, such as the removal of load-bearing walls, is considered the most risky because building collapse — the number one claim for restructuring remodels — could cause a total loss.
Hank Houseflipper is taking his first stab at flipping houses, and recently hired an experienced architect, engineer and general contractor to help him transform a 1950s house into a modern home with an open concept floor plan. He plans to remove load-bearing walls to create a free-flowing space. His contractor recommends securing a remodeling builders risk policy for the construction. Hank thinks it’s an unnecessary expense, but reaches out to an agent just to find out a little more. He and the agent discuss the project, and Hank ultimately decides to purchase a remodeling builders risk policy.
This is wise on Hank’s part. In the worst-case scenario, can Hank afford to lose thousands of dollars if a collapse occurs and he’s not properly covered?
Boost Your Remodeling Insurance IQ Today
Insurance agents play vital roles in helping clients recognize and mitigate potential risk. When talking to a prospect about their upcoming home or business remodeling project, it is important to get a full picture of the scope of the work involved.
Be proactive, and ask probing questions – even if those questions seem silly. Doing so could save your client in the long run, and save you from potential E&O claims.
Want to be prepared for renovation insurance questions? Brush up your knowledge by reading answers to agent’s top remodeling insurance questions.
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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