Builder’s risk insurance provides property coverage for buildings and structures that are under construction. If you’re a builder or a commercial property owner, you could face considerable monetary loss if something goes wrong with the construction of a building and you don’t have builder’s risk insurance.
Here’s what you need to know about builder’s risk insurance, what it covers and what it doesn’t cover.
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What Is Builder’s Risk Insurance?
Builder’s risk insurance covers property and construction materials during a project. It’s also called “course of construction insurance.”
Builder’s risk policies are available for new construction projects, remodeling and installation work. Projects are classified as either commercial or residential risks.
Who Needs Builder’s Risk Coverage?
Types of people and businesses who can benefit from builder’s risk insurance include:
- Architects
- Builders
- Building owners
- Development and investment companies
- Engineers
- General contractors
- Lenders
- Subcontractors
What Does Builder’s Risk Insurance Cover?
Builder’s risk insurance protects builders against multiple types of problems, including:
- Fire
- Lightning
- Hail
- Explosions
- Theft
- Vandalism
- Hurricanes and other “acts of God”
A builder’s risk policy may cover:
- Buildings and structures that are under construction, including temporary storage buildings, fencing and scaffolding
- Equipment, such as repair of damaged equipment, as long as the equipment is covered under the policy
- Materials and supplies being used
- Constructions signs, trees and plants
- Valuable papers such as blueprints, and electronic data
- Labor
- Ordinance and law costs, or the increased cost to repair or rebuild due to building codes and laws at the time of the loss
Builder’s risk policies may also cover the following “soft” costs that result from construction delays:
- Additional interest on loans
- Lost sales income
- Real estate taxes
- Rental income
What Does Builder’s Risk Insurance Not Cover?
Not everything is covered under a builder’s risk insurance policy. For example, earthquakes and floods are generally not covered, but you can buy additional insurance for those problems. Here’s a short roundup of other common exclusions:
- Acts of terrorism and war
- Damage due to a faulty design
- Employee theft
- Mechanical breakdowns
- Rust and corrosion
- Wear and tear
Be sure to check a policy’s exclusions before buying it. You want to be aware of what costs you’ll be paying if the worst happens.
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The Cost of Builder’s Risk Insurance
The median cost of builder’s risk insurance is typically $95 a month, according to Insureon. It is a good idea to choose coverage limits that are equal to the estimated costs of construction.
Exact coverage and policy limitations will vary among insurance providers. So be sure to shop around for both coverage and price.
How To Find the Right Builder’s Risk Insurance Policy
Shopping for builder’s risk insurance is similar to buying other insurance: You need to decide what coverage you need and compare rates from multiple insurance companies. There are some differences to understand, too.
Here’s how to find the best builder’s risk insurance policy for your situation:
Figure out how much coverage you need
Think about the project and where your risks are. This should include transportation, materials, the construction site and storage.
Based on your risk, you can decide on the coverage.
Decide when you need insurance to start
You typically need coverage once the contracts are signed. Your policy will include information about when coverage begins.
Estimate how long you need coverage
Builder’s risk insurance typically ends when the project is done. The policy should include specific conditions for when the coverage ends. That may be when the policy expires, when the building is occupied or when the building is being used for its intended use.
Understand the coverage
A builder’s risk policy excludes costs associated with repairs or correcting faulty work associated with a subcontractor. But a policy with an ensuing loss provision may cover damage and faulty work.
Exclusionary provisions differ by policy, so make sure you understand the policy to avoid bad surprises.
Builder’s Risk Insurance vs. General Liability Insurance for Contractors
General liability insurance for contractors does not cover a contractor’s property. You’ll need a builder’s risk insurance policy.
A general liability insurance policy offers coverage if you are responsible for causing injury or property damage to someone else. It also pays associated legal fees.
As for damages, general liability insurance for contractors protects against fire and explosions that cause damage to someone else.
A general liability insurance policy for contractors will typically cover:
- A person getting injured on your property
- A commercial space getting damaged
- You or an employee causing injury or property damage
- You getting sued for false advertising, libel or slander
For those in the construction business, having both builder’s risk and liability insurance is a smart move.
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