A builder's risk policy protects the builder from a loss sustained by the property owner.

In other words, when he builds a house on your property the stuff he builds becomes your stuff as he is building it (generally if you own the land, you own the things built on it). If the project sustains significant damage or is destroyed the builder's risk policy will absorb that loss.

A general liability policy protects the builder from many lawsuits that he would be exposed to during the project. These include personal injury suits because he was negligent, etc., not covered by the builder's risk policy.

The simple answer is to have him buy it and offer to offset the cost. It is incredibly cheap. A million dollar policy will be less than $1,000 per year (probably around $700) and will take about 30 minutes to get.

I advise that you also talk to your insurance company about an umbrella policy during construction for yourself. This will probably run $300 - $500 per year.

Good luck.

@bry911 Thank you for your thoughtful reply. He (and we) looked into both the GL policy and an umbrella policy for the project. This is how we got so far along in the process, both our builder and we thought we could add GL for just our project to the tune of about $3,000. Unfortunately, at least in Texas, none of the insurers want to cover JUST our project, they want his entire business covered. The cost averaged around $40,000. He (and we) spoke to insurers from Dallas all the way down to San Antonio and and they all said the same thing. We also looked into doing an umbrella policy to make up the difference, but were told we could only do that if we were financing the building ourselves.

@jannicone, I guess our area is just not that litigious? I’m not certain. I know that “his” guys are subs with their own companies, so perhaps they bear that burden?

I guess that I am surprised that a licensed general contractor is allowed to operate without general liability. I don't think Texan's are any less litigious, just less tolerant of regulation.

Wow - I just looked Texas does not require licensing for GC's at the state level, however, many cities / municipalities require licensing and the commensurate liability insurance requirements.

Seems like a big miss, but in keeping with Texas's aversion to state level taxation, etc. Seems like this is the kind of thing that a state income tax would cover.

No free lunch.

Well, if you were paying yourself then you could go with no GL. But since someone is lending the money, they want the GL. Are there other lenders who don't require that?

@jn3344, yes, there are quite a few, we were just hoping to use this particular lender as they do conversion loans (basically your construction loan converts to a standard home loan at time of CO) this would have saved us about $15,000 in secondary closing costs and extra interest.

This is how we got so far along in the process, both our builder and we thought we could add GL for just our project to the tune of about $3,000. Unfortunately, at least in Texas, none of the insurers want to cover JUST our project, they want his entire business covered.

All general liability will cover the builder and not the project, but that quote seems pretty high, unless he has gotten sued a few times and eventually dropped (which I doubt because if that was the case $3,000 would seem like a real bargain for him and he would already have it).

How Much Is General Liability Insurance?

Before you can start a construction project or sign a contract, you'll probably need General Liability Insurance, which covers lawsuits when a third party (subcontractor, customer, etc.) sues you over an injury or property damage. GL Insurance is often required by clients (check your contracts) and you'll probably need it when you apply for a building permit or contractor's license.

General Liability Insurance for construction services groups typically costs $361 to $924 in annual premiums.

Median policy premium:

$361 - $924

Per claim limit:

$1,000,000

Policy limit:

$2,000,000

Median policy deductible:

$1,000

https://construction.insureon.com/resources/cost/construction-insurance

There are many lenders that will do a conversion loan. Look for a different lender as it sounds like you are happy with the builder.

Any bank that would lend without a liability policy in place is fiscally irresponsible.

Its not your bank that has an issue here. It’s your builder.

GIANT RED FLAG on that builder. A million dollars of GL is dirt cheap to get. If he’s lying to you about the cost of that, then he is lying to you about other things. “Nice guys” are sometimes the charming con men after all.

If he is telling you the truth that HIS policy would cost that much, then somewhere in his recent past was a claim that some insurance company paid out. Likely more than one.

You would be very foolish in moving forward with someone without liability. It’s kinda the base insurance that any contractor purchases if he wants to be legit and not a hack. TX has enough issues with complete hacks as it is. I would not budge on that. You need to examine your contractor a lot closer. Check court records.

@Sophie Wheeler, we have checked court records and the better business bureau there haven’t been any court cases or complaints made against him or his company. We’ve spoken with two local banks who love working with him and have no problem with his insurance, however neither offer a conversion style loan.

I may be totally off the mark for your needs, but I have a few observations to share. In the state where I live, this is how we do it: 1. Contract requires builder and his subs to have general liability insurance, ($1 million minimum, subs might be less) workman's comp AND auto liability. 2. * Contract states builder and subs shall provide homeowner with a certificate of insurance naming homeowner as Additional Insured. 3. Contract contains language re: lien releases and partial payments.

* This one is a "gotcha" in our State. If the contract doesn't require
the builder to name you and provide you with the certificate, then, even
if you get a certificate naming you as additional insured, it is worthless. This is specific in our State laws.

You may have a great relationship with your builder, but if one of his workers has a freak injury on your job - or hits someone when he is picking up materials for your job, the affected families are not going to be kind if they decide to sue you.

For us, the cost of item 2 (getting the certificate of insurance showing that we are named as additional insureds) costs between $0 to $150. We always pay for that and consider it money well spent.

I just encourage you to do your homework on this one. Find out how all of this works in your State. None of this is that expensive compared with the cost of the home or the price of a lawsuit. Insurance shouldn't be a deal breaker with your builder, particularly if you offer to pick up the excess costs.

Finally, in our State, one cannot get a contractor's license without a general liability policy in place. Please check your State requirements. There is a lot we don't know about your situation and your comfort with risk. You are the one we care about in this situation and we want you to be informed and to understand that the builder is shifting most (all?) of the risk on this project to you. So be careful.

Edited to explain: your insurance will not cover you for injuries caused by your builder's negligence. His will cover you but only if you are added as additional insured.

@jennifer matherne I just found this post and am also im central Texas with the exact same situation. Would love to hear how you proceeded.

Most if not all lenders will require general liability insurance from the GC.

They may also require workers compensation insurance from the GC.

Builder's risk is similar to homeowner's property insurance & IMHO, redundant vs homeowners property insurance. It is not liability insurance. In CA is is traditional for the property owner to obtain the property insurance to protect against fire, vandalism, etc.