Contractors can perform many important jobs made up of complex or interconnected elements, but few rival the difficulty of constructing a home. Homebuilders tackling a new build from the ground up will need to think of everything, from which subcontractors they trust to which tools they need for the job and whether those tools are in good repair.
Builders are wise to secure comprehensive insurance coverage to protect against the most common risks while constructing a home. However, every home project is different, making picking the ideal coverage difficult.
Here is an overview of the insurance landscape for homebuilders and which types of policies are typically most effective in providing residential construction coverage.
Contractor General Liability Insurance
Every contractor should consider utilizing general liability insurance. This coverage is essential in protecting the business against liability and financial damage should someone be injured due to the contractor’s actions.
For instance, suppose the contractor is working and leaves a hammer on the floor; if someone trips on the hammer and falls, they have the right to sue the contractor for medical expenses. General liability insurance can pay for this instead. Additionally, general liability insurance for contractors covers damage that the contractor does to another party’s property.
If the contractor is sawing through a beam and a piece flies off the saw and breaks a car window, the insurance would shield the contractor from the financial repercussions while compensating the car’s owner. Residential construction sites can be dangerous areas, so this type of coverage is essential.
Builders Risk Insurance
Despite its name, builder’s risk insurance does not protect the builders working on a construction site. Instead, it covers the property itself. If the residential construction suffers damage during the building process, the resulting financial repercussions can alter the project’s timeline or even halt it completely.
Builders risk insurance protects against issues such as vandalism, theft, arson, sump backup, or damage to wiring and other systems that may occur while the structure is partially completed. This is especially important to acquire before construction starts when the building is most vulnerable.
Many interior areas will be temporarily accessible from the outside while the structure and basic elements of the building are constructed. Builder’s risk insurance helps contractors and property owners recover quickly if damage occurs before the project’s completion.
Subcontractor Default Insurance
Even the best homebuilders likely can’t do it all—they will rely on subcontractors who specialize in niche areas to complete a project. They may subcontract an electrician, plumber, drywall repair specialist, painter, mover, and more before the project’s end, and each individual poses a risk to the build.
If a subcontractor fails to complete their work to the appropriate quality standard or their task is not performed according to the agreed-upon timeline, issues can quickly arise that delay construction completion or interfere with other tasks. Subcontractor default insurance protects the homebuilder against liability for the behavior of their subcontractors, ensuring the project continues smoothly and on time.
Errors & Omissions Insurance
Homebuilders are human, and it is human to make mistakes. Local code changes and updates, difficulties unique to the property, misunderstandings about client goals, and more can lead to unsatisfactory results that must be amended after construction.
Errors & omissions insurance (often called E&O) protects contractors from liability should the property owner claim that a mistake has occurred during construction. This issue may arise when a contractor makes an error in interpreting the architectural schematics (such as placing an outlet on the wrong wall) or creates a feature that does not align with the client’s vision.
Rather than paying out of pocket to redo the work, the contractor’s E&O coverage can front the cost to fix the issue and ensure the client is satisfied and that the building is safe to use.
Get the Right Mix of Residential Construction Coverage
Homebuilders have numerous choices for insurance coverage to suit their residential construction projects. Because each property is unique, comprehensive coverage should address many potential pitfalls without costing more than necessary.
The experts at Burton & Company can help your residential construction company determine the perfect mix of protections that align with your budget. Contact Burton & Company to schedule an appointment to discuss your options and learn more about the coverage residential homebuilders rely on.