Will My Lender Accept Builders Risk Insurance?
Builders risk insurance covers destruction or damage to a construction project. Today, many commercial property construction projects are funded by a financial loan that uses the building, and in some cases the project itself, as security or collateral. Builder's risk insurance is essential in not only securing funding for a commercial property or construction projects, but also crucial for properly protecting your investment.
Any company or person (including lenders) with a financial interest in the project needs builder’s risk insurance. By obtaining and proving that you have builder’s risk insurance, your lender is effectively safeguarding their investment in your construction project.
Will lenders accept a builders risk policy for loan closing?
Yes, lenders will almost always accept builders’ risk insurance to meet the loan requirements given that the policy provides sufficient property coverage for the building and materials that they are financing.
A lender in a construction project will usually require the borrower to list them as a loss payee or mortgagee on the insurance policy, thus becoming the beneficiary of the insurance proceeds, to make sure their interest is protected.
Is Builders Risk Insurance Necessary?
If you are remodeling an old home or building a new home, it is essential to obtain builders' risk insurance to ensure all involved parties have proper protection. Either builder's risk insurance is provided by the property owner or general contractor. Your commercial lender will usually require proof that you have property insurance.
The likelihood of a standard commercial property insurer offering coverage on a building that is going to be under construction is very slim. If repairs or reconstruction is going to be substantial, then property insurance carriers usually will not provide a traditional commercial property coverage form. In addition to the difficulty in procuring a standard commercial property policy for a building that will be under renovation, there are greater risks to you as the owner by not properly protecting your investment during the build-out.
The Builders’ risk insurance policy limit most commonly protects both the building (at its current pre-construction value) as well as covering the cost of the construction improvements. That total estimated value often includes the building materials, components to be installed later, and personal property prior to the completion of the build-out. Thus, the full investment can be insured properly during construction.
What is covered under Builders Risk Insurance?
A builder’s risk insurance policy is meant to help protect your project from certain types of property loss and damage. While the exact coverages and limitations will differ between insurance providers, getting a comprehensive builder’s risk policy may also offer coverage against vandalism or theft in addition to basic perils such as fire damage.
Builders’ Risk policies can be written to include windstorm and ordinance & law, as well as provide coverage for less conspicuous risks such as damage to temporary structures, scaffolding, fencing, landscaping, subdivision signs, and construction material.
However, alone builder’s risk policies do not typically cover liability claims. It is important to secure liability coverage in addition to your builders’ risk policy.
Most of the time, in construction project financing, most lenders require a commercial property policy to finalize a loan. As an investor or property owner, having the builders' risk policy could properly protect your investment through the construction stage by providing property insurance on the current building and the construction materials during the renovation.
It is important to consult with an insurance agent to procure proper coverage for your commercial property project. Moore Resources Insurance agents can place builders risk coverage with a single carrier and convert that into a standard commercial property policy upon completion of construction. Speaking with a trusted insurance advisor is the best place to start when planning a new purchase or a commercial property construction project.
Moore Resources is an Independent Insurance Agency located in St. Petersburg, FL and offering Homeowners Insurance, Auto Insurance, Personal Insurance and Business Insurance. Our reach extends beyond the Tampa Bay area to the entire state of Florida. Moore Resources has regionally been dedicated to serving the local residents of Pinellas, Hillsborough, Polk, Pasco, Manatee and Sarasota counties; including St. Pete, Tampa, Clearwater, Bradenton, Brandon, Dunedin, Gulfport, Lakeland, Largo, Lutz, Palm Harbor, Pinellas Park, Riverview, Ruskin, Seffner, Seminole, Temple Terrace, Tierra Verde, Town n Country, and the Gulf Coast Beaches.
The purpose of this blog is to present general information only. It does not interpret specific policies or coverage. In order to obtain detailed information regarding your insurance, contact a licensed insurance agent.