Builders Risk Insurance protects contractors from incidents involving damage to your client’s property, injury, your building and contents (machinery, equipment, inventory, and office supplies), and provides you with defense counsel in the event you are sued.
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If you’re responsible for a construction project, you may already have insurance policies in place for you personally or business, such as commercial auto or property insurance, or workers compensation.
But there is specific coverage that can help protect you from the risks of taking on the construction of a new building. If loss or damage arises with this type of project, you need coverage that protects you and others involved from significant loss.
From groundbreaking to move-in day, builders risk insurance can help to protect not only your project, but also your reputation and ability to complete the project if risks arise.
Learn about what it does and doesn’t cover, if you need builders risk insurance, how much it costs, and how Frost & Remer can help you shape a policy that is best for your particular project.
What does builders risk insurance cover?
When a construction project is insured with builders risk coverage, it can cover the cost of damages done to the structure resulting from a variety of events. It can also protect building materials, supplies, and equipment that is either on site, in transit, or at another location.
This often applies to ground-up new construction projects, remodeling, and installations classified as either residential or commercial.
Covered events could include the following:
- Vehicle or aircraft collision
- Weather-related incidents
- Non-severe weather events such as lightning, rain, and hail
- More extensive winds, flooding, and earthquake coverage may require higher deductibles or a coverage extension.
Beyond these types of property damage, the policy could help to cover some costs that aren’t directly related to the construction, if property damage results in a delay for building the project. This coverage can include the following:
- Lost sales or rental income
- Added interest on loans
- Real estate taxes
Personal vs commercial builder’s risk policies
There are coverage options for both personal projects, such as a home being built, and commercial projects, such as a building being constructed.
In either case, the coverage will offer similar benefits but, for example, the coverage levels and costs may be higher for a larger commercial project.
- Home under construction: In this situation, the homeowner might purchase the builder’s risk policy themselves or they may require the company or general contractors they’ve hired to build the home to have proof of their coverage for the project.
If, for example, the homeowner doesn’t yet own the property, and the builder has proper coverage, the homeowner may not need their own policy. This is because they aren’t yet vested in the property.
- Building under construction: This situation can be more complex as it often happens on a larger scale than building homes. There is often a property owner, developer, investor, and general contractors involved.
In this case, anyone who has a vested interest while the project is being constructed may benefit from a builder’s risk policy.
What does it not cover?
There are standard exclusions in this type of policy that are not often included. Because of their complexity, some can be covered, but they require specialized insurance. These exclusions include issues such as the following:
- Wear and tear
- Rust and corrosion
- Mechanical breakdowns
- Faulty or poor design, planning, materials, or workmanship
- Employee or internal theft
- Acts of war and terrorism
- Employee injuries
What are coverage extensions?
Builders policy insurance can vary widely to fit each project’s unique needs. Sometimes this requires extensions to the coverage. Extensions, or endorsements, can protect in areas such as the following:
- Scaffolding, construction firms, and temporary structures
- Property in transit or in storage
- Valuable paperwork
- Debris or pollutant removal and disposal or sewer backup
Do you need builders risk insurance?
Anyone with a financial interest in the construction project will want builders risk insurance, including individuals or companies.
This could include the property owner, the general contractor, subcontractors, the financial lender or other investors, the architects, and retail companies. The building or property owner, for example, will typically ask every contractor involved to carry this insurance.
Who typically pays for builders risk insurance?
If you’re the owner, developer, or general contractor for a construction project, you may be the one to purchase builders risk insurance, which can then cover the losses for anyone who has a vested interest in the project while it is being constructed.
How much does builders risk insurance cost?
Costs will vary depending on the type of project and the construction materials being used.
When determining how much your policy could cost, consider what coverage and limit amounts you will want and whether you need to add extensions to help protect the project. The higher these options are, the higher the insurance rate will be.
Coverage limits should typically be the same as the anticipated cost of the construction project or the value of the structure itself once it’s built. The value could include all materials and labor costs, excluding land value. The cost of a policy often ranges between 1% to 4% of the total construction costs.
Frost & Remer can help you determine what coverage is not only best, but also most affordable for your project.
What is the timeframe for having a policy in place
Policies are typically written in terms of three, six, or 12 months. If the project is not completed by the end of the initial term, it may be able to be extended, but typically only once.
Coverage typically ends when the constructed building is completed or occupied.
Having builders risk insurance helps you prepare for the unexpected for an important investment — your construction project. Protect the project from potential damages and risks that can delay or halt the build and impact the investment.
Schedule a virtual appointment for your full policy review and risk assessment from Frost & Remer. We will make recommendations to ensure that your construction project and business is protected with the most affordable coverage.