You know the old saying—better safe than sorry.
That has never been more true than in the home construction arena. With so many moving parts, the building process is rife with potential pitfalls.
That’s why we require all of our borrowers to protect themselves by purchasing a builders risk insurance policy right up front.
It’s the smart thing to do.
If you’re new to real estate investing, you may be asking yourself—what exactly is builders risk insurance, and why do I need it?
What Is It?
Basically, builders risk insurance protects property that is under construction and is sometimes referred to as ‘course of construction’ insurance. It is a specialized type of insurance policy that begins when the construction or repair work starts and ends when the project is finished and ready for sale or occupancy.
What Does It Cover?
Although there is no standard builders risk policy as every project is different, most coverage includes property loss due to fire, lightning, hail, explosions, hurricanes, theft, and vandalism, among other risks. Most policies exclude damage from earthquakes, floods and wind and require special coverage extensions for these risks. Other standard exclusions often include ordinary wear and tear, acts of terrorism and war, employee theft, rust and corrosion, mechanical breakdowns, and damage resulting from faulty design, planning, workmanship and materials.
What Does NavCap Require?
We should note that, here at NavCap, we require all of our borrowers to obtain All Perils special coverage which covers losses from windstorms and, in certain coastal areas, hurricanes. This will be on top of the standard builders insurance policy. We also recommend that our borrowers request coverage for water damage from faulty plumbing or construction-related issues.
What Is The Typical Coverage?
And as far as coverage goes, we require a policy that covers 100% of the insurable improvements on a replacement cost basis. This means, basically, that your policy should allow for the repayment of your loan amount in full. Typically, the cost of a builders risk policy can be anywhere from 1 to 4 percent of what is budgeted for construction. For more details about policy specifications, refer to this downloadable form in our loan documents.
Your Success Is Our Ultimate Goal
Here at NavCap, we are always looking out for our clients’ best interests. So we require a builders risk policy on every project we finance, no matter the location or size. We know that things happen, and we want you to be prepared for the unexpected. A good builders risk policy that insures the structure, materials on site and in transit, as well as labor and equipment will go a long way towards ensuring your project has a good outcome—no matter what. Contact your local insurance broker for quotes.
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