As a residential homebuilder, you face risks from every angle: property damage, liability lawsuits and workers’ compensation claims, to name a few. 

With so many risks, you can’t afford to skimp on insurance.

Builders risk insurance protects new construction projects

New construction projects pose risks similar to those of existing dwellings, but standard property insurance may not cover all your exposures. A fire could severely damage a home before it’s completed, or someone might walk off a job site with valuable materials.

Luckily, builders and owners can protect themselves with builders risk, or course-of-construction, insurance. This type of policy insures your project while it’s being built. It covers property, including building materials, supplies and equipment. Your property is covered whether it’s on-site or in transit. The coverage is in force until the project is finished.

Like property insurance, builders risk can be written on an “all-perils” basis. All perils policies cover many risks, including hurricanes, earthquakes, lightning, fires, explosions, sewer backups and theft.

In addition to covering these “hard costs,” builders risk insurers offer the option to cover “soft costs.” Soft costs are the out-of-pocket expenses associated with a claim. For example, you might have to pay additional interest on a loan if a project is delayed. Other soft costs include insurance, real estate taxes, bond and permit fees, legal and accounting expenses, and advertising expenses.

You can also add “loss-of-earnings” insurance, which covers loss of rent or use of a building if there is a delay.

Consult with an insurance professional about the coverage you need. Remember that houses are taking longer than expected to complete. Nearly all new construction is experiencing delays. Make sure the policy you purchase allows you to extend the coverage period.

Also, consider a rider that adjusts your limits as the value of the project goes up. With building material increases and change orders, projects usually cost more than expected.

General liability for homebuilders

Homebuilders face significant liability risks. These include injuries at job sites, exposure to hazardous materials, property damage and faulty work. Commercial general liability (CGL) insurance protects against legal claims resulting from bodily injury, property damage and personal injury that occur during your normal business operations.

For example, if a homeowner visits your construction site and slips and falls, CGL would cover the claim. If one of your workers accidentally starts a fire that destroys all of the wood framing, your CGL policy would cover the damages. And if you’re sued for slander or copyright infringement, you’re also covered.

CGL also pays for medical expenses, property damage, attorney fees, judgments and settlements. 

However, CGL doesn’t cover your employees if they’re injured. For that, you need workers’ compensation insurance. CGL doesn’t cover professional or employment practices liability, either. But you can buy those policies separately if you need them.

CGL is essential for contractors. Many project owners require proof of CGL insurance, and you may need it to get a general contractors license. Often, banks also require CGL coverage if you’re applying for a loan or line of credit.

For large construction projects involving multiple subcontractors, consider a wrap-up policy. Also called a controlled insurance program, this type of policy wraps up all the insurance you and your subcontractors need into one policy. It’s centrally purchased and controlled by the owner of the project or the general contractor.

Most wrap-ups include CGL and workers’ compensation insurance for the parties who need them. The CGL component covers all liability risks for the project. Wrap-ups also give you the option to add other coverages such as builders risk, subcontractor default, professional liability and excess liability (umbrella) coverage.

Workers’ compensation insurance

You’ll need workers’ compensation insurance for your employees. You’ll also need to make sure your subcontractors have it for theirs. Workers’ compensation provides benefits if one of your workers is hurt on the job.

You should be able to purchase workers’ compensation from a regular insurance company. But if you’ve been turned down because of high risk or too many claims, you’ll need to buy coverage from your state’s assigned risk pool.

Keep your claims and premiums down by establishing a health and safety program for your workers. Always follow Occupational Safety and Health Administration requirements for construction.

Commercial auto and property insurance

You’ll need commercial auto insurance for your vehicles. Even if you drive your own truck, it still needs to be commercially insured if you use it for business. A commercial auto policy will allow you to name your employees as additional insureds so they can drive your vehicles.

You’ll also need commercial property insurance to protect any business property you own, such as buildings, computers, office equipment, supplies, tools and materials. You may need to purchase a separate inland marine policy to cover property you transport to job sites. And you may need insurance to cover any heavy equipment you lease or buy.

Talk to an insurance professional about creating a tailored insurance program to cover all your property and liability exposures.

It’s an exciting time for new housing construction, but there are also many risks. Upswings in material costs, labor shortages and supply chain disruptions mean price uncertainty and delays. Whether you’re a builder or an owner, take care of your insurance needs before you put any shovels in the ground.