Insurance during renovation

[Kuba Bednarz]

Hello BP Community,

I am about to close on a single family property that will need a bit of work before it is ready to be rented: foundation, roof, some electrical, cosmetics including drywall, painting, floors etc. It is my first rehab, and I was caught by a surprise that I can’t get just a standard rental property insurance policy, as rehab is considered too big of a risk. I believe I need to get what a Builder’s Risk insurance, but it seems it only insures the materials not the dwelling.

I hope to get some feedback and what is the best thing to do to ensure proper insurance is in place during the rehab phase that protects the home in case of an unfortunate event. I estimate time to rehab between 2 and 3 months, and property is just outside of Houston, TX.

Thanks in advance.

[John Mocker]

Kuba, The Builders Risk policy covers the Building in the course of construction and generally includes materials not yet incorporated in the building (on site, in transit, or at temp site) with separate limits. The type of builders risk you want is a Renovation Builder Risk. That type has a limit for the existing structure and then a limit for what is being added or it covers both on one limit. Policies differ on the perils covered (Special form vs Named perils) and on the valuation after loss (Replacement Cost vs Actual Cash Value). Be sure to have your agent explain the differences. If you are getting multiple quotes know that the best price may not be the best value. Another thing to watch out for is the Minimum premium. Some policies are fully earned, meaning that if you cancel early you do not get anything back. Others may have a 25% minimum (approx. 3 mos coverage) that is better and no minimum is the best. For my clients I try to get an annual policy that will refund if it is cancelled early. Even if they think they will be done in 3 mos or 6 mos. I still prefer the full year term. That way, if the project runs longer than anticipated, we don't have to go through the renewal process. Lastly, remember that you need Liability coverage as well. Some companies can incorporate it with the Renovation Builders Risk and others you will need to purchase that separately. Good luck with the project and feel free to PM me if you have any questions on the info above.