Standard homeowners insurance policies may cover damage, liability, and sometimes theft of building supplies for properties under construction. But other types of insurance can be purchased to supplement a typical homeowners policy.
When building or remodeling a property, it is a good idea to close any gaps in a standard homeowners insurance policy by purchasing additional insurance. Parties such as property owners, developers, contractors, lenders, or architects might carry insurance related to a specific construction project.
There are various types of insurance policies that can be purchased to cover properties under construction. These range from protection against theft; coverage for third-party claims of damage tied to the construction project; and coverage to protect materials in transit.
Builder’s risk insurance, also referred to as a course of construction insurance, covers properties under construction or renovation. Contractors, the property owner, or developer often carry builder’s risk insurance policies once a project is underway. This policy provides protection in case of theft or vandalism of tools or construction equipment. Some policies also cover building materials and equipment being stored off-site. Standard coverage typically includes the cost to repair or replace building materials damaged due to fire, weather or vandalism. The policy may provide coverage for costs associated with delays in construction due to property damage, such as lost sales or real estate taxes. A builder’s risk policy can be customized for each project. For instance, coverage can include specific items, such as scaffolding or debris removal and disposal.
Contractors can choose from a variety of business insurance policies to protect them against risks associated with their projects. Among these policies are a general liability policy, workers’ compensation, builder’s risk and commercial property. A contractor can select the policies that best suit a particular project. A contractor typically carries a general liability policy. This covers third-party claims such as bodily injury, medical payments, or property damage related to the contractor’s work. Claims related to slander or libel also may be included in the coverage. The insurance also can cover lost, damaged or stolen tools or equipment or damage done to the equipment being installed inside a home. Additionally, pollution liability insurance coverage can be purchased to protect contractors found responsible for creating pollution at the construction site. Some states require contractors to show proof of a minimum amount of liability coverage before being assigned a project. Many states also require a contractor to carry worker’s compensation insurance to cover costs associated with employees with job-related injuries or illness. Workers’ compensation covers expenses such as medical bills, lost wages, and legal fees.
Construction insurance is the general term for various insurance policies that provide protection during construction projects.
While contractors typically purchase general liability and worker’s compensation insurance, construction policies can be tailored to fit individual projects. Factors determining the type of policy required include whether an individual or business is purchasing the insurance; the person’s role in the project – such as property owner or contractor; and the type of property being insured. There are a variety of insurance options to protect property owners, developers, and contractors from risks associated with construction projects. The level and details of the coverage will vary by project. Learn more about Building Under Construction insurance and more related topics in our insurance term glossary.