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What Is Builders Risk Insurance?

A Construction Worker

Construction is a risky business. There are always construction challenges that arise, and there’s always a chance that Mother Nature or another actor may damage the work in progress. Builders risk insurance offers protection while projects are under construction, protecting both the owner and the contractors from loss or damage.

What is builders risk insurance?

Builders risk insurance, also called course of construction insurance, protects buildings while they are under construction. It usually applies to new buildings that are being built. It helps mitigate the risk of certain property damage while a project is under construction. It’s used exclusively on privately funded projects since public projects are self-insured by the government.
Builders risk insurance coverage covers damages to materials, supplies, and equipment from the time they are in transit to the job site until the project is complete by the builder. The property owner or contractor is reimbursed for the cost to replace damaged materials and equipment if a covered event should happen. Soft costs like lost sales, rental income, and loan interest may be covered if they are specified in the policy.
Builders risk covers damages caused by fire, lightning, hail, acts of God, impact by vehicles or aircraft, vandalism, burglary, or building or land collapse.
Exclusions to builders risk coverage include employee theft, war and terrorism, wear and tear of the building material, rust and corrosion of the construction material, poor design or workmanship of the building material, temporary properties, debris removal, and pollution cleanup. If a project needs coverage for one of these excluded incidents, it can generally be purchased as an add-on to the builders risk insurance policy.
General liability insurance, which all contractors must have, covers the damage and loss of a contractor’s tools and equipment due to natural events, theft, vandalism, or fire. Builders risk policies cover the materials and equipment that will be installed in the project.

Should you buy builders risk insurance?

Because builders risk covers the entire project, it can be purchased by any of the parties involved in the project. Owners often have the most to lose, so they will often purchase a builders risk policy and add the general contractor and subcontractors to the coverage.
If an owner is constructing a new building and they don’t have any current property that is protected by an insurance policy, it may be less expensive for the general contractor to purchase coverage. Of course, the contractor can ask the owner to reimburse them for the cost.
If an owner is remodeling or renovating an existing building that they already have property insurance on, construction is usually covered by their existing property insurance policy. In this case, a builders risk policy is not required. Owners should check their property coverage to ensure that it provides the necessary coverage for their construction project in case of any construction site hazards and mishaps.

Other ways to protect yourself

General contractors and subcontractors can ask the owner to provide builders risk insurance on private construction projects. Since everyone on the project is covered by the policy, it doesn’t matter who purchases it. Remember that builders risk is not necessary in remodel or renovation projects. It would also be beneficial to instill construction safety tips to the workers prior to starting the job as a part of risk management.
Another type of policy, called an installation floater, covers small projects usually performed by a subcontractor. These can be used to cover small remodel or renovation projects that may not be covered by general property insurance. While subcontractors usually purchase installation floaters, a general contractor can provide it when necessary.
Builders risk and other insurance policies protect general contractors, subcontractors, designers, and project owners from losses that may damage a construction project. Having the proper insurance on a project is a key to mitigating risk, which contractors must do on a daily basis. No matter who purchases the policy, it’s important to have protection to avoid added costs due to damage during construction. Using construction bidding websites like PlanHub will give you access to general contractor software free and will help in the construction contractor process.

Who Needs Builder’s Risk Coverage?

Any person or company with a financial interest in the construction project needs builder’s risk insurance. Some common people you may want to include on your policy as insureds include the:

  • Property owner
  • General contractor
  • Subcontractors
  • Lender
  • Architects

What Types of Property Does Builder’s Risk Insurance Cover?

A basic builder’s risk insurance policy helps cover buildings and structures under construction. It also helps protect:

  • Materials
  • Supplies
  • Equipment on site, in transit or at other locations

How Much Does Builder’s Risk Insurance Cost?

Every builder’s risk insurance policy is different, so costs vary depending on what you need. Your policy may need more coverage or you may need to add extensions to help protect your construction project. Generally, your builder’s risk insurance cost depends on the:

  • Construction materials
  • Type of project
  • Policy details, like coverage amounts and limits

A good rule of thumb is to choose coverage limits that are equal to the anticipated cost of construction. So, if your construction project has a high cost, it could result in a higher insurance rate.

What Does Builder’s Risk Insurance Cover?

A builder’s risk insurance policy helps protect your construction projects from certain kinds of property damage. It can also help cover additional soft costs, or expenses not directly related to construction, if property damage causes a delay. This can include:

  • Lost sales
  • Rental income
  • Additional interest on loans
  • Real estate taxes

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