Let’s say you are about to break ground for a new building. Preconstruction planning is complete, work permits have been secured, subcontractors have been hired, and general liability insurance has been purchased.
Commercial property insurance policies often claim to cover property damage during projects, but that’s not always true. Structures that are under construction are likely not covered by a commercial property policy, which covers only buildings you own and their contents.
You may not be covered by commercial property insurance if , for instance, you find the whole job site is burned down with most of the framework destroyed and the building materials destroyed. If you want to protect yourself from this kind of loss, you should consider a builder’s risk insurance policy.
Builder’s Risk Insurance
Known also as Course of Construction Insurance, builder’s risk insurance protects buildings under construction. Construction project insurance is essential in protecting construction projects but it can be complex and difficult to understand. In any case, a properly drafted builder’s risk insurance policy is vital. Essentially, it serves as the backbone of any successful risk management initiative.
Business risk insurance provides protection against property damage as a result of:
- Natural disasters, like earthquakes and hurricanes
Who Will Need Builder’s Risk Coverage?
The builder’s risk insurance is necessary for anyone with a financial interest in a construction project. Among the people you may wish to include as insureds on your policy are:
- Property owner
What Does Builder’s Risk Insurance Cover?
It is important to have builder’s risk insurance to protect your structures and buildings while they are under construction. Additionally, it protects:
- On-site equipment, equipment in transit, or at other locations
- Construction Materials
You can protect your construction project from certain types of property damage with a builder’s risk insurance policy. In the event that property damage causes a delay in construction it can also help cover additional soft costs. Among these are:
- Rental income
- Real estate taxes
- Additional interest on loans
- Lost sales
A builder’s risk policy varies depending on the specifics of their construction project. Getting coverage extensions allows you to customize your policy to meet your project’s needs. Extensions typically cover the following:
- Structural scaffolding
- Temporary structures
- Pollutant cleanup
- Removing and disposing of debris after a loss
- Construction forms
Exceptions to Builder’s Risk Insurance
Insurance policies for builders’ risks may exclude certain coverage. Projects at risk from earthquakes, floods, wind, or beach erosion are usually excluded from coverage, but you might be able to extend your coverage to protect your project in case of such damages.
The following are other exclusions from builder’s risk insurance coverage:
- Acts of terrorism and war
- Employee theft
- Damages caused by faulty designs
- Mechanical breakdowns
- Rust and corrosion
- Materials and Workmanship
- Wear and tear
What Does Builder’s Risk Insurance Cost?
Depending on what you need, the cost of builder’s risk insurance varies. To help protect your construction project, you may need to increase your policy coverage or add extensions. Builder’s risk insurance costs are generally determined by:
- Project type
- Details of the policy, such as limit and coverage amounts
- Construction materials
As a general rule, coverage limits should be equal to the estimated construction cost. Consequently, if your construction project is expensive, your insurance rate may be higher.
Getting a quote from an agent or broker is the best way to find out how much your builder’s risk insurance will cost.
Choosing The Right Builders’ Risk Policy
The following guidelines will help you determine which builder’s risk insurance policy is best for you:
Find a Broker or Agent with Experience
The best way to protect yourself from builder’s risk is to work closely with an agent or broker and an insurance company with experience in this area. Every project has its own risks, so you should choose a policy that addresses your specific needs. You can get quotes from your agent or broker and decide how much coverage you need.
Consider Your Entire Exposure Before Purchasing Insurance
Make a list of all exposures your project has at different stages, including those at the construction site, during transit, or at temporary storage. Property of all kinds can be covered at any location, or you can narrow coverage to specific risks and properties. You should review your insurance policy to ensure there are no gaps in coverage, regardless of what level you choose.
Understand When Your Coverage Starts
There are some policy provisions that may limit when the coverage begins for your project under a builder’s risk insurance policy. To avoid surprises, make sure you understand what exactly triggers coverage to begin.
Find Out When Your Coverage Runs Out
Due to its temporary nature, your builder’s risk insurance coverage will likely end after the completion of your project. You will find out the specific conditions of your insurance policy and till when you are covered. The process can end after:
- The building is occupied
- The building is put to use as intended
Cancellation or expiration of the policy
Understanding Defective Work Coverage
Builder’s risk policies generally do not cover repairs or corrections to faulty work by subcontractors. Nevertheless, policies with ensuing loss provisions may cover any resulting damage to other property.
There can be a wide range of exclusionary provisions. Make sure you understand what your policy covers if such provisions are included.
Make Sure You Go Through Your Policy
Make sure you know everything about your policy before signing a contract. You should always check the terms, conditions,, and exclusions of all coverages. Your builder’s risk insurance policy should clearly explain what is and isn’t covered. Identify any coverage gaps and discuss them with your agent or broker.
Choosing a Builder’s Risk Insurance Provider
Rather than writing a standard property insurance form, insurance companies typically write builder’s risk policies using an inland marine form. As a result, each project is covered in a way that is tailored to its specific needs. That’s why you should choose a marine insurance carrier that is experienced. An underwriter specializing in builder’s risks can design a policy that suits your needs, so you’ll get the maximum benefit.
A good insurance agency will have claims specialists who are knowledgeable about builders’ risks and can provide prompt, fair service in the event of a loss.
If you are about to embark on a construction project, contact an agent and learn more about how builder’s risk insurance can protect your construction project.