What is Builder's Risk Insurance?
Builder’s Risk Insurance is a property policy designed to provide coverage for single family residences while under construction. It protects the lender and the policy holder against any unforeseen acts of nature or accidents that may prohibit the structure to be completed. Earthquake and flood coverage can usually be added to the policy for an additional cost but the basic coverage is theft/malicious mischief, vandalism, fire, windstorm, lightning, and hail. It covers the owner’s or contractor’s interest in materials at the job site before they are installed, materials in transit intended for the job and the value of the property being constructed until it is completed and accepted by the owner. The policy may be written to cover the whole structure for new construction or rehabilitation projects.
Builders risk insurance is meant to offer coverage for accidental events and not for poor construction.
Why do I need it?
Builder’s Risk needs to be in place the entire duration of construction. The best way to make sure your insurance is in place is to pay it through the closing costs of the construction loan. When you sign your loan documents, your closing agent will be presented with a complete certificate and invoice that explains they are to pay the insurance agent from the loan proceeds and send a check upon funding of the loan. They will then add it to your settlement statement so all parties is aware that a check for the exact amount was sent to the insurance agent to bind the policy.
What are the terms?
The typical length of coverage is 12 months. Builder’s Risk insurance is not pro-rated and is bound at time of closing on your construction loan so there is no reimbursement if you finish early. There are deductible options of $1000 or $2500 up to $5000 and the total policy amount is determined on the loan amount or the estimated cost new, which is derived from the appraisal.
Who is insured?
The contractor or the owner of the property is the insured and the lien holder, or lender, may be added as additional insured. This is to make sure the lender is contacted in case any changes are made to the policy like a mailing address or a claim is made.
Can I shop around for the best price?
Please feel free to shop for your own insurance. Your transaction coordinator, loan processor, will shop for a quote for you so you can compare. If you would like to shop for your insurance, make sure when speaking to any insurance agent you let them know what state you are in and whether or not you are using a General Contractor or involved with the Owner Builder program.
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Charter Funding Construction Loans
5825 Avenida Encinas, Suite 101
Carlsbad, CA 92008
(888) 590-7466 office (760) 269-3123 fax
www.cfconstructionloans.com
