What is Builder's Risk Insurance?
Existing buildings are exposed to a wide variety of threats—fire, flooding, and vandalism are just a few of the ways building structures can be harmed. However, buildings under construction aren't ready to face risks that completed buildings can withstand. There's also the chance of an accident during the construction phase, like materials being destroyed or installed incorrectly. A proper risk analysis from our John Holroyd Agency agents can help reduce the number of threats a new construction faces, and our agents can help reveal additional threats that may need to be covered by additional policies.
Builder's risk insurance is a policy designed to mitigate the chance of loss and protect you in the event that damage is done to the building. This policy is most commonly purchased by landowners and those funding the project, although some contractors purchase it in order to have more control over how each job is insured.
This policy is mainly designed for new construction, rather than changes and improvements to existing buildings. That form of construction is usually covered by property insurance and does not need any additional coverage, although it's best to talk with an agent before starting any particularly large project just to be absolutely sure it's covered.
What Does Builder's Risk Insurance Cover? What Does It Not Cover?
Builder's Risk Insurance generally covers the owner, the lending institution, the contractor(s) performing the work, and other related parties. In addition to providing coverage for damage to the building itself, most plans also cover temporary constructs (like scaffolding), materials, and equipment being used (whether it's currently on-site or off-site). The majority of policies are written on an all-perils basis, which means that reimbursements are available for any losses except those specifically excluded.
Common exclusions from this coverage include (but are not limited to):
The value of the land itself
Damages beyond the estimated value of the construction
Any losses brought by law or ordinance changes
Damage from earthquakes
Losses from war, nuclear hazards, or actions by civil authority
As you can see, most of the exclusions are not likely to occur during the course of a normal construction project. The value of the land is the only one likely to change as new work is done, and you will likely need to account for any improvements or losses the next time your company prepares taxes.
Builder's Risk Insurance Policy Lengths
Most policies last until the building is no longer under construction. The exact point at which this occurs can vary—it may be when certain parts of the structure are done (but finishing work, like painting, has not been completed), up to the day it opens for business, or when the contract with the construction company ends. If you're worried about interim risks—like the building being damaged between when construction finishes and when it opens for business—talk to one of our agents and ask about extending your coverage.
Common Builders Risk Insurance Questions:
Contractors like yourself are primarily responsible for carrying out some form of construction, whether that entails a general task or a more specialized project. That being said, you must ensure that projects get completed correctly, in a timely manner and within the anticipated budget.
Nevertheless, a wide range of potential property damage issues could disrupt project operations, resulting in significant delays and added costs. In these circumstances, a builder’s risk insurance policy can be utilized in order to protect the interests of both yourself and any other parties associated with the project—such as the property owner, architects and other contractors.
Builder’s risk insurance can offer assistance to contractors and individual property owners who are managing their own construction projects. There are several sub-specifications of coverage available to address the needs of different parties. This includes the following:
New construction insurance pertains to new construction projects and can apply from the moment you start your work on the property. It will apply until you complete the project.
Remodeling insurance covers damage occurring to a property that is undergoing renovation. So, if you are revamping a master suite, this coverage can assist you during the process.
Installation insurance covers property before it gets installed into a permanent place. For example, if a contractor stores material at a job site, and the materials that they plan to use get stolen or damaged, this coverage will pay for your recovery costs.
Further, some builder’s risk insurance policies also offer premises liability insurance. This coverage will pay for bodily injuries or property damage that you may negligently inflict upon third parties throughout construction—including visitors to the job site. Yet, keep in mind that other types of liability coverage within your greater commercial insurance portfolio may also be able to provide such protection.
Builder’s risk insurance can be useful for a variety of individuals. Apart from assisting contractors, this coverage can also offer protection for other businesses or homeowners who are looking to manage their own construction projects. In other words, any party that has invested in a construction project should consider purchasing this form of insurance.
Take note that it’s important to have a builder’s risk insurance policy secured prior to the beginning of a project. In addition, if you sign a contract pertaining to the construction project, you will typically be required to have this coverage in place at the time that the contract period starts.
The cost of your builder’s risk insurance policy will be dependent on several different elements. Regardless, your trusted agent will make every effort to secure an affordable policy that adequately addresses your particular needs.
Additionally, remember that builder’s risk coverage isn’t the only commercial insurance policy that a contractor like yourself should have. Various forms of coverage—including standard property, commercial auto, general liability and workers’ compensation insurance—are all considered key purchases when it comes to fully protecting your business.
1. "Threat/Vulnerability Assessments and Risk Analysis." WBDG. Accessed April 20, 2016. https://www.wbdg.org/resources/riskanalysis.php.
2. "Who Should Buy Builder’s Risk Insurance?" BuildingAdvisor. Accessed April 20, 2016. http://buildingadvisor.com/who-should-buy-builders-risk-insurance/.
3. "How Do I Account for Land improvements?" Questions & Answers - AccountingTools. Accessed April 20, 2016. http://www.accountingtools.com/questions-and-answers/how-do-i-account-for-land-improvements.html.