Insurance when Rehabbing

[Joseph Escamilla]

A friend and I are under contract to purchase a property in the Poconos. The primary use will be as a Vacation home for our families to use with the potential to list it as a vacation rental in the future.  We are getting conflicting ideas from different insurance agents and not sure which route to take. 

Since we are rehabbing the property once we close one insurance agent is recommending we get a "Builder's Risk" Policy. The other agent doesn't think we need a Builder's Risk policy they are telling us that as long as the contractor provides us with a Certificate of Insurance and adds us as an additional insured party, then we are protected from anything going wrong during the rehab such as a worker getting hurt or any damage done to the property.

We really just want to make sure we aren't exposing ourselves to future issues/ lawsuits. Obviously every policy will be different but can someone please answer any or all of the following questions below?: 

-What would be covered/not covered for Builder's Risk Policy vs the contractor's COI? 

-If we decided to not go with builder's risk what are exposing ourselves to? 

-Would a contractor ever add us as additional insured? and would they even need to? 

-Would it make sense to just get a builder's risk policy while we are rehabbing and then changing to a regular policy once rehab is done? 

-Anything else to keep in mind? 

THANK YOU!!

[John Mocker]

Joseph,

At Closing you will want to have a Renovation Builders Risk policy and a Liability policy (if it is not part of the Reno Builder Risk).  The Builders Risk will cover the existing structure (most likely valued at the depreciated value) and the renovations that will be put in (usually at the Replacemement Value).  There are perils that could cause a loss that have nothing to do with the Contractor's Insurance.  Suppose lightening hits the house and causes a fire.  The contractor is not liable for that most likely so you would have an uncovered claim. 

You still want to get proof of insurance from all contractors you hire and have a written contract with them.  It is often recommended that you have them name you as an additional insured on their policy for the Liability coverage.  That, in my opinion, is not a replacement for you carrying Liability coverage yourself.