Builders Risk Insurance vs Contractors Insurance (2024)

Builders' risk coverage is a kind of property insurance that pays the cost of repairing an unfinished building on a construction site that has been damaged by specified risks. In contrast, contractor’s general liability insurance covers risks associated with third-party injuries and property damage. Although builders' risk insurance and contractors' general liability policies are both used in the construction industry, they cover different categories of risk, property, liabilities, and stages of construction and remodeling. Both are critical to a contractor’s business operation. Without them, a contractor can be liable to third parties during all construction phases, even to a prospective owner.

What is Builders Risk Insurance?

Builders' risk coverage protects against financial loss to which a builder may be subject while their “product” (the building under construction) is being built or remodeled. It also protects tools, materials, and equipment that is on-site, off-site, or in-transit.

Builders Risk Insurance Coverage and Policies

The different types of coverage that builders risk insurance offers include protection for:

• Property damage
  • fire and explosions
  • lightening and hail
  • theft and vandalism or
  • other Acts of God
• Costs and Expenses
  • rental income
  • lost sales
  • real estate taxes
  • interest on loans
• Project-specific items
  • temporary structures
  • debris removal and disposal
  • scaffolding
  • cleanup

A basic builders risk policy includes insurance that covers loss relating to:

• buildings and structures
• materials, supplies, and equipment
• costs and expenses
• unique items specific to a particular project

What is Contractors Insurance?

Contractors General Liability Insurance protects against negligence claims that arise from property damage, advertising injury, or bodily injury, including indemnity and defense costs for covered claims. Everyone involved in construction, from a general handyman, to finish carpenters and general contractors require this coverage to avoid individual financial exposure for damages and defense costs.

Contractors Insurance Coverage and Policies

• Property Damage – damage to another’s property
  • Negligent performance
  • Theft
• Bodily Injury – damage to a third-party, including
  • Libel
  • Invasion of privacy
  • False arrest
  • Wrongful eviction
• Personal and Advertising Injury- damage to the intellectual rights, including:
  • misappropriation of advertising ideas and
  • copyright infringement

A basic contractors general liability policy includes insurance that covers loss relating to:

• property damage
• bodily injury
• personal and advertising injury

What Are the differences between Builders Risk General Contractors Liability Insurance?

• CGL provides liability protection for negligence but builders risk does not
• Builders risk covers projects under construction damaged or destroyed by specified perils that require repair or replacement
• Builders risk insurance covers tools, equipment, supplies, or other equipment and CGL does not
• CGL policies are written on commercial lines forms that are generally standard among insurers, while builders risk policies are written on a company’s own inland marine forms

What Additional Insurance Policies Should Construction Businesses and General Contractors Consider?

• Workers Compensation Insurance —required in almost every state, covers costs for work-related injuries
• Commercial Auto Insurance – covers business-owned vehicles for claims arising from accidents, theft, or weather
• Tool and Equipment Insurance – covers the repair and replacement of items that are damaged, lost, or stolen
• Professional Liability Insurance – covers professional errors like missed completion deadlines, or failure to execute specific design plans
• Umbrella or Excess Insurance — fills gaps in coverage and increases liability limits, usually at a lower premium than increasing liability limits of a primary policy

Home Builders Insurance or Contractors Insurance: Which Fits My Business Better?

Provide final tips or guidelines where the user can identify which product is better for them (based on their type of company, size, policies, goals, etc.)

Smaller companies may want to consider bundling general liability insurance with commercial property insurance into a Business Owners Policy (BOP), as a way to secure more comprehensive coverage at a lower cost than purchasing each coverage type separately.

Select a contractors policy that includes product liability coverage that can protect a business when faulty workmanship in finished work causes injury or property damage.