Builder’s 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. However, having a properly structured builder’s risk insurance policy can be crucial. In fact, it will serve as the backbone of a successful risk management program.
Builder’s risk insurance helps protect construction projects from property damage due to:
- Fire
- Lightning
- Hail
- Explosions
- Theft
- Vandalism
- Acts of God, like hurricanes
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
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
Because every construction project is unique, each builder’s risk policy is different. You can customize your policy to fit your project’s needs by getting coverage extensions. Common extensions include protection for:
- Scaffolding
- Construction forms
- Temporary structures
- Debris removal and disposal in the event of a loss
- Pollutant cleanup
Builder’s Risk Insurance Exclusions
Be aware that builder’s risk insurance may have coverage exclusions. For example, earthquake, flood, wind or beach zones are usually excluded from coverage, but you may be able to get extensions to help protect projects vulnerable to these kinds of risks.
Other builder’s risk insurance coverage exclusions include:
- Wear and tear
- Acts of terrorism and war
- Employee theft
- Rust and corrosion
- Mechanical breakdowns
- Damage due to faulty design
- Planning
- Workmanship and materials
- Engineers
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.
The best way to find out your builder’s risk insurance cost is to contact an agent or broker and get a quote.
Find the Right Builder’s Risk Policy
Follow these guidelines to help you get the right builder’s risk insurance policy:
Find an Experienced Agent or Broker
It’s important to work closely with an agent or broker and insurer that has experience with builder’s risk. Every project has different risks, so you’ll need a policy that addresses your unique needs. Your agent or broker can help you choose the right amount of coverage and get you quotes.
Consider All of Your Exposures Before Purchasing Coverage
Do an inventory of all your project’s exposures at different phases of the project, including those at the construction site, in transit or at a temporary storage site. You may choose to get broad protection for property of all kinds at all locations or narrow your coverage to specific property and risks. Whatever level you choose, make sure you review your policy so there aren’t any coverage gaps.
Know When Coverage Begins
A builder’s risk insurance policy usually starts on the date when all the contracts get signed, but certain policy provisions may restrict when coverage begins for your project. So, make sure you understand what specifically triggers the start of coverage.
Know When Coverage Ends
Since it’s a temporary insurance policy, your builder’s risk coverage will likely end after your project’s completion. Your policy will tell you the specific conditions of when you have coverage until. It can end after the:
- Policy expires or is cancelled
- Building becomes occupied
- Building put to its intended use
Understand the Extent of Coverage for Defective Work Problems
As a general rule, builder’s risk policies exclude the costs of repairing or correcting faulty work from a subcontractor. However, policies with an ensuing loss provision may cover the resulting damage to other property caused by the faulty work.
Exclusionary provisions can vary widely. If your policy includes these types of provisions, make sure you understand the extent of coverage.
Read Your Policy
Before you sign a contract, read through your entire policy. Be sure to double check all coverages, conditions for coverage and exclusions. You’ll want to make sure you know what is and isn’t covered with your builder’s risk insurance policy. If you find a coverage gap, work with your agent or broker to address it.
Selecting a Builder’s Risk Insurance Carrier
Most insurers write builder’s risk insurance policies on an inland marine form rather than a standard property insurance form. This allows for broader coverage that’s tailored to the needs of each construction project. That’s why it’s important to pick an experienced marine insurance carrier. You’ll reap the benefits of working with an underwriter who specializes in builder’s risk and can design a policy for your needs.
We’re an experienced insurance company that helped to insure many construction projects, including the:
- Hoover Dam
- Golden Gate Bridge
- St. Lawrence Seaway
With The Hartford, you can work with claims specialists who understand builder’s risk and can deliver prompt, fair claims service if a loss occurs. You can also work with our risk engineering team to help avoid losses with your construction project.
