Insurance for Owner-Builders

When you are an Owner-Builder, there's a bevy of things going on. You'll have money tied up in materials, you'll be hiring subcontractor after subcontractor, and you may or may not have a lender overlooking your every move. One of the most important things you can do before starting any remodeling or new home construction project is to explore the requirements and legalities involved in properly insuring your exposures.

The Contractor's State License Board describes an Owner-Builder as a property owner who acts as his or her own general contractor for a home remodeling project or new construction and obtains his or her own building permit. Typically property owners obtain owner-builder permits when they are providing all or a portion of their own labor and/or materials personally. An owner-builder assumes responsibility for the overall job which may include, but is not limited to, taxes, insurance, and other legal liabilities.

The two most popular terms for Owner-Builder insurance contracts are "Course of Construction" and "Builder's Risk". These insurance contracts basically cover the materials and parties involved in the home building project which can include you, architects, lenders, subcontractors, and any physical materials. The perils these contracts generally protect against are fire, windstorm, vandalism, malicious mischief, theft of building items, etc. A "Broad Form" endorsement on one of these policy contracts will also insure for the above incidents while your property is in transit or off-site. You can obtain "Course of Construction" or "Builder's Risk" coverage through an insurance broker. Most major insurance companies will offer these types of policies so be sure to shop around for the best rate. You'll want the policy limit to reflect the total completed value of the structure including all materials. In the event of a covered loss, the policy will pay up to the policy limits for damages. Your construction budget is the best source for determining the most appropriate limit of insurance. The broker or agent quoting the coverage for you will be able to explain the specifics and the importance of choosing the right limit.

Both of the above types of insurance contracts DO NOT INCLUDE liability coverage. You'll need to secure a separate General Liability policy to cover this very important exposure. General Liability insurance is a contract of insurance specifically in place to protect owners of homes from the numerous liabilities that could occur such as; accidents on your premises, falling objects, or anything else that may cause injury or death. The main components of General Liability insurance are Bodily Injury as mentioned above, Personal Injury which includes libel or slander, and Property Damage which would include coverage for damage done to your personal property by an outside party.

General Liability coverage can also be obtained through an insurance broker and any well-informed agent or broker will automatically quote this coverage for you at the same time they quote the "Course of Construction" or "Builder's Risk" insurance. Another important consideration when you decide to become an Owner-Builder is Workman's Compensation Insurance. If you plan on hiring outside workers to complete your project, you may need this coverage. By outside workers, we mean not through a subcontractor. This type of coverage is state regulated and will cover lost wages, medical expenses, rehabilitation services and death from an injury or illness sustained while on the job.

Be sure to check your state's specific Workman's Compensation laws as you may find that you are exempt from providing coverage. For instance, Texas does not require employers to provide their workers with this coverage and other states have exemptions depending on the number of employees or the total cost of wages. The best source for finding out your specific state requirements is the US Department of Labor.

As always, no insurance policy covers everything. You'll want to be sure and read through your policy and be aware of its limitations and exclusions. Protecting what you could be up against in advance will save you time, money and quite possibly the financial security of your project all together. It is important to remember that in addition to the information in this article, you'll want to contact the Internal Revenue Service at (800) 829-1040 and/or the U.S. Small Business Administration at (800) 359-1833 in order to confirm any specific obligations or requirements for your municipality.