Builders Risk Insurance: Protection With A Hard Hat

Construction sites are susceptible to risks such as vandalism, theft, and extreme weather damage. Thus, a building requires protection while it is under construction. Fortunately, builders risk insurance provides protection against those sorts of risks and covers any financial losses that may occur as a result.

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What is Builders Risk Insurance? 

Also known as the course of construction insurance, it is a specialized type of commercial property insurance. It covers a contractor’s property, material, and equipment that is related to a project or building under construction or renovation. Insurance is available for these types of construction:

  • Ground-up new construction
  • Remodeling/Renovation
  • Installation

Construction sites are areas of high risk, and unpredictable events can happen at any time. Furthermore, a wire can short and cause severe damage to a building on the construction site. With builders risk insurance you can protect both the business owner and property owner from unexpected losses. The coverage can also be extended to machinery, materials, supplies, and equipment at the construction site.

Who Needs This Policy? 

This policy is for anyone that has a construction project or business that can benefit from the builders risk coverage. Hence, some examples of them are:

  • General contractors: Different types of construction sites have different equipment, tools and supplies, and materials. Hence, contractors and sub-contractors who have taken on construction projects can get this policy.
  • Building or property owner: Owners can purchase this policy if the contractors have not done so.
  • Others: Other groups such as development companies, house flippers, and retail companies may also buy this policy.

Furthermore, some lenders or lending institutions may require the owners or contractors to purchase this policy for protection.

builders-risk-insurance-policy

How Does Builders Risk Insurance Work? 

Builders risk insurance is a short-term policy as it covers the construction or renovation project only. Moreover, the policy usually comes for specific time frames like three, six, or twelve months. However, you can extend the policy if your project’s timeline is extended, but this needs to be done before the policy expires. The policy ends when one of the following occurs:

  • Occupancy
  • Closing of the sale
  • Abandonment of the project
  • Policy expiry date

What does Builders Risk Insurance Cover? 

  • Policy coverage differs between carriers. A standard policy will cover the following: Structure/building
  • Materials
  • Supplies and tools

The following liabilities are protected against under this insurance:

  • Weather damage: This coverage includes protection against fire, hurricane, lightning, tornado, hail, and other natural disasters. For example, if your construction site is destroyed by one of those elements, you will be compensated for the materials and labor used in the project up until that point.
  • Theft and vandalism: The insurance will protect against theft or destruction of your construction site. Construction site equipment, materials, and tools are extremely valuable and thus are prone to theft.
  • Vehicles/Aircraft damages: The insurance will cover damage caused by vehicles or aircraft. For example, if a truck crashes into a building on your construction site, the policy will cover the cost of materials and labor needed to repair the damages.

However, according to The Balance Small Balance, you need to research and read up on your builder’s risk insurance policy to be updated on all of its limitations and exclusions.

Multiple coverage options on your fingertips.

Choose from various options and select the policy
that best suits your requirement.

Available extensions and endorsements 

Additional liabilities can be added if you extend your coverage. So, if you would like a little more protection, consider these options to extend your coverage.

  • Materials and property in transit: Inland marine insurance will protect building materials from damage while being transported.
  • Scaffolding: You can cover scaffolding and temporary structures.
  • Valuable papers coverage: This coverage will ensure important documents like blueprints and site plans are protected.
  • Delay in completion: You can add an extension to cover loss of income due to delays because of physical damage. Additionally, the extension will cover extra expenses during a suspension. Moreover, soft costs such as administrative, inspection, advertising, promotional, construction loan interest, real estate taxes, engineering, and contract renegotiation may be covered as well.

Standard Exclusions in a Builders Risk Insurance Policy 

Unfortunately, the policy doesn’t cover everything on the construction site. Some exclusions are:

  • Workplace accidents and injuries: It would be best if you had a separate workers compensation insurance to cover for accidents.
  • Third-party liability: It would also help to go for general liability insurance to cover third-party liability.
  • Faulty design and planning
  • Employee dishonesty and theft
  • Mechanical and equipment breakdown
  • Acts of war
  • Water damage
  • Earthquake
  • Intentional damage
builders-risk-insurance-cost

Types of Insurance Packages that Include the Builders Risk Policy 

How much does Builders Risk Insurance Cost? 

The cost will differ based on the project, duration, location, and quality of materials being used. Furthermore, premiums will be between 1% to 4% of the total project cost. Hence, some of the determining factors of premiums are:

  • Project location

This differs as some areas may be more prone to unfavorable weather or natural disaster. Therefore, high-risk areas will increase the cost of insurance.

  • Renovations and remodelling projects

Having to protect an existing structure during a renovation will increase your premium costs.

  • Construction materials

The quality of materials you use will also affect the cost. Therefore, when comparing high-quality construction materials to low-quality, high quality will require more coverage and increase costs.

  • Project duration

The longer the project, the longer duration of risk exposure. Therefore, premiums typically increase the longer the project is.

 

Has this article been helpful to you? Leave a comment below and share your thoughts with us. Find an agent near you today!

Multiple coverage options on your fingertips.

Choose from various options and select the policy
that best suits your requirement.

FAQs

What’s the difference: builders risk vs commercial property insurance?

Commercial property insurance helps cover an existing structure and its contents. On the other hand, builders risk insurance covers risks during construction and renovations. Hence, it is a type of property insurance. 

If you have a financial interest in the construction project, is it a wise choice to get builders risk insurance?

If you have a financial interest in the construction project, it is a wise choice to get builders risk insurance. Typically, stakeholders like property or building owners and contractors purchase this policy.

What is an installation floater?

Sometimes an installation may create damage to the structure. As a precaution, an installation floater is purchased by subcontractors to cover the risk of installation hazards. 

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