Construction projects are inherently risky. Having builder’s risk insurance gives you some much-needed peace of mind during this time. Builder's risk insurance is a specialized coverage that insures a building or structure under construction. This policy can protect new construction projects as well as remodels and installation projects.
Who needs builder’s risk insurance?
There are many situations where you may need builder’s risk insurance. Typically, anyone with a financial interest in a construction project, whether it’s a commercial or residential project, is able to get builder’s risk insurance. Some people who may benefit from builder’s risk insurance include:
- House flippers.
- Property owners.
- Builders.
- General contractors.
- Subcontractors.
- Engineers.
- Architects.
What does builder's risk insurance cover
Builder’s risk insurance protects the property under construction, structures, and building materials against specific losses. Some of the covered perils include:
- Theft.
- Fire.
- Lightning.
- Vandalism.
- Collapse.
- Windstorm.
- Hail.
- Natural disasters, such as hurricanes.
Every builder’s risk insurance policy is different and covers a specific set of losses. Depending on the policy, builder’s risk insurance might also cover:
- Storage buildings.
- Equipment.
- Construction signs.
- Trees and plants.
- Labor.
- Law costs.
- Ordinance costs.
- Blueprints and electronic data.
Most builder’s risk insurance policies cover expenses you might face due to construction delays. These expenses can include real estate taxes, lost rental income, and interest on your loan.
What does builder’s risk insurance not cover?
While builder’s risk insurance provides protection for numerous events, it doesn’t cover everything. For example, damage from earthquakes and floods is not usually covered by builder’s risk insurance. Other exclusions include:
- Damage caused by faulty design.
- Theft by employees.
- Normal wear and tear.
- Mechanical breakdown.
- Rust and corrosion.
- Acts of war or terrorism.
How much does builder’s risk insurance cost?
The cost of builder’s risk insurance depends on many factors, including the insurance company, project type, policy details, location, and client type.
Most people end up paying about 1% to 4% of the total construction costs on insurance, according to Apollo Insurance. So, if your construction costs are $500,000, expect to pay anywhere from $5,000 to $20,000 on builder’s risk insurance for the project.
When purchasing builder’s risk insurance, you should select coverage limits that equal the costs of construction. This will give you the best financial protection if something goes wrong. However, keep in mind choosing a policy with higher coverage limits will increase the cost of your insurance.
In most cases, the property owner pays the builder’s risk insurance premium, but that’s not always the case. For example, some builders will pay for the insurance if it’s stated in their contract. Ultimately, it’s the property owner’s responsibility to make sure the construction project is insured, no matter who pays for it.
When should you get builder’s risk insurance?
Builder’s risk insurance is a temporary insurance policy. Your coverage typically starts on the day the contract is signed or on the first official day of construction. The policy’s expiration date could be the date the building becomes occupied, or the day the project is completed.
If you’re thinking about getting builder’s risk insurance, make sure to purchase coverage before the project begins. Most insurance carriers don’t sell builder’s risk insurance for projects already underway. Being proactive can protect you against the financial repercussions of unexpected incidents that could damage your property.
Frequently asked questions (FAQs)
What is the difference between builders risk insurance and property insurance?
Builder's risk insurance and property insurance provide distinct protections for your property. Builder's risk insurance is specifically designed to protect your property while it’s under construction. On the other hand, property insurance offers long-term protection for completed structures, like a house or office building. Both policies cover properties against risks like theft, vandalism, and fire.
What is an example of a builder's risk claim?
An example of a builder's risk claim could be a scenario where a sudden and severe windstorm damages the windows, fencing, and scaffolding of your construction project. In this case, you could file a builder's risk claim to cover the costs of repairing or replacing the damaged structures and materials.
What are other names for builders' risk insurance?
Builder's risk insurance is also known as course of construction (COC) insurance. This is the same type of insurance coverage that protects construction projects from a variety of risks and perils. Insurance companies may use these two names interchangeably.
This story was written by NJ Personal Finance, a partner of NJ.com. The information presented here is created independently from the NJ.com editorial staff, and purchases made through links in this article may result in NJ.com earning a commission.
FAQs
Builder's Risk insurance covers damages caused by fire, lightning, hail, wind, theft, and vandalism, offering comprehensive protection throughout the construction process.
What is the purpose of builder risk insurance? ›
Builder's Risk insurance is a type of specialized Property insurance that protects buildings and structures under construction or undergoing renovation from physical loss or damage. It is temporary coverage, with a policy typically issued for three, six, nine, or 12 months.
What is an example of a builder's risk claim? ›
Also known as construction insurance, builder's risk insurance prevents the insured from having to pay out of pocket if damages happen during construction. For example, vandalism could happen on active job site. Damage includes drywall repair, equipment theft and broken pipes of already-completed plumbing work.
Which one of the following is typically covered by a builder's risk policy? ›
Builder's risk policies typically cover; damage or loss to the building, materials, and equipment during the course of construction. Coverage may also extend to include debris removal, soft costs, and temporary structures.
Why is builders risk insurance so expensive? ›
The cost of builder's risk insurance policies has risen dramatically over the last decade due to climate, economic, and supply chain risks looming over construction projects worldwide. Still, builder's risk construction insurance is necessary for any professional construction or renovation project.
What is the difference between a homeowners policy and a builder's risk policy? ›
While homeowners policies encompass property and liability coverages, builders risk policies typically provide property coverage only, specifically for the materials, fixtures and/or equipment to be installed during the construction or renovation of a building or structure—should those items suffer physical loss or ...
How do you determine builder risk limit? ›
How much builder's risk coverage do I need? The total coverage your business needs depends on the cost of your project. Your limit should equal the total completed value of your project. Your coverage begins at the time you become legally responsible for the property.
What is another name for builders risk insurance? ›
In the simplest terms, builders risk insurance (also known as course of construction or inland marine coverage) insures a structure while under construction.
What types of property are covered by a standard builders risk form? ›
The types of property covered by a standard builders risk form usually include the building itself, any temporary structures used during the construction process, and machinery that will be permanently attached to the building.
How are builder risk premiums calculated? ›
The cost depends on the construction project. Policy costs are typically between 1% and 4% of the total completed value of the structure, which includes construction costs.
A builders risk coverage form provides protection against losses on the building, equipment, and supplies, but not to accidents on the job, the land, scaffolding, and theft. The policy does not cover war, nuclear hazards, extreme weather, or government seizure.
What is not usually covered by building insurance? ›
Termites and insect damage, bird or rodent damage, rust, rot, mold, and general wear and tear are not covered. Damage caused by smog or smoke from industrial or agricultural operations is also not covered. If something is poorly made or has a hidden defect, this is generally excluded and won't be covered.
What is a common exclusion under builders risk coverage? ›
Faulty design, materials and workmanship: Almost all builders risk policies contain exclusions for faulty design, materials and workmanship.
How important is builders risk insurance? ›
Builder's risk insurance, also known as course of construction insurance, is a specialized type of property insurance that helps protect buildings under construction. It's essential in helping protect construction projects, but can be complex and often misunderstood.
Does builder's risk cover labor costs? ›
What does Builders Risk Insurance cover? The builder's risk insurance policy will pay for damages up to the coverage limit in the policy. The limit must accurately reflect the total completed value of the structure (all materials and labor costs, but not including land value).
What is the purpose of a risk management plan in construction? ›
In summary, a construction risk management plan is a crucial tool for ensuring the success of a construction project. By identifying, analyzing, and responding to risks proactively, project managers and stakeholders can minimize disruptions and keep the project on track.
What is the difference between installation floater and builder's risk policy? ›
What Is Installation Floater Insurance? While builders' risk typically covers entire projects, an installation floater protects the tools and materials that contractors use in the course of business.
Who is responsible for builders risk insurance in Florida? ›
It may be purchased, and the policy owned, by the general contractor or the property owners. Although policies may vary with coverage options, a comprehensive policy will cover all stages, from beginning to receipt of a Certificate of Occupancy.
