Builders Risk Insurance: Classifying a Project as New Construction or Remodeling
At first glance, it may seem obvious whether to consider a construction project as new construction as opposed to remodeling for purposes of obtaining builders risk insurance to cover risk of loss during construction. In reality, the distinction isn't quite so cut and dried.
For agents, it is important to understand the differences so you can explain it to your clients and quote the correct type of coverage for their projects.
In builders risk insurance, new construction is defined as construction from the ground up. Generally, a builders risk policy should be purchased before construction even begins. However, sometimes there is a need to get a policy when construction is already underway and has stopped.
For example, let’s say your property owner client began construction with one contractor and took out a builders risk policy based on that contractor’s experience and qualifications. Midway through construction, your client and the contractor parted ways. Your client still needs to finish his project with a new contractor, and will need a new builders risk policy. This is still considered new construction.
When it comes to renovations, there are several different types of projects that can all be categorized as remodeling for builders risk insurance. The common denominator for all of these projects is that there was already a completed structure in place before the new construction project started.
Remodeling projects that can be covered under builders risk insurance include everything from installing or upgrading a kitchen or bathroom to major structural renovations. If your client purchased an existing house and intends to hire a contractor to gut it and completely renovate the property, coverage will still be classified as remodeling since there is an existing structure. What’s more, home remodeling insurance can be written to include the existing structure, or to specifically cover only the renovation.
For remodeling projects, there are some specifics both you and your client should keep in mind:
- If the home is registered as a historic property, it cannot be covered under the US Assure Builders Risk Plan insured by Zurich, though exceptions can be made for the improvements made to it. Likewise, coverage is not available for homes being lifted or moved from their existing foundations.
- Clients should be aware that losses will be limited to the policy’s named perils if there has not been construction activity in the 60 consecutive days leading up to a loss. Construction includes repair, replacement or installation of materials, including paint. So, this potential limitation on policy benefits can be avoided fairly easily with some planning on your client’s part.
- Clients considering purchasing coverage for remodeling projects should also know that many small projects will not qualify for coverage. To be insured under a builders risk policy, the renovations should be at least 20% of the existing structure’s value.
These are just some of the many nuances to builders risk insurance. As an agent, you will be in the best position to help your clients select coverage to meet their needs when you have a solid understanding of how builders risk insurance works.
To learn more about eligibility, underwriting, coverage and how to get a remodeling insurance quote, read our free guide, From Groundbreaking to Remodeling: Builders Risk 101. Then, contact us to get started writing builders risk insurance for your clients.
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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