Builder’s Risk Insurance: What Is It & Why Do You Need It?

Builder’s risk insurance covers commercial and residential structures while they are being constructed, renovated, or remodeled. In the event of a covered accident, a builder’s risk insurance policy can cover materials, fixtures, and equipment being used in construction or renovation. Here’s everything you need to know about this type of insurance policy.

Who Buys Builder’s Risk Insurance?

Multiple groups are eligible for a builder’s risk policy. These include:

  1. Property owners/ homeowners
  2. Investment/ development companies
  3. Contractors
  4. Builders
  5. House flippers
  6. School districts
  7. Retail companies

What Projects Are Eligible?

Builder’s risk policies usually cover ground-up construction projects, remodeling/renovation projects, and installation projects. These projects are categorized as either commercial or residential risks. The definitions of these classifications, however, vary from insurer to insurer. Residential projects typically cover family homes, regardless of whether the work performed entails ground-up construction, installation, or renovation. Conversely, commercial projects include many kinds of structures used for commercial purposes, from office buildings to factory complexes to wind turbines.

Types of Policies That Are Available

Builder’s risk insurance policies usually cover three types of construction:

  • new ground-up construction
  • remodeling (excluding or including the existing structures)
  • installation

From there, types of policies vary based on the offerings of the insurance providers. However, regardless of the differences in terminology used by various insurers, most policy types usually include blanket policy, blanket installation policy, reporting form, and single-project/location-specific.

Location-specific policies are quite straightforward. They cover a single project. Conversely, blanket policies and reporting forms can be a bit complex, enabling policyholders to cover multiple projects using a single policy.

What Is Covered?

Builder’s risk policies usually cover damage caused by a wide range of risks, including fire, wind, theft, lightning, hail, vandalism, and explosions. You should read your policy to familiarize yourself with its exclusions and limitations.

Standard exclusions include employee theft, earthquake, weather damage, water damage, war, voluntary parting, contract penalty, mechanical breakdown, and government action. A key exclusion you should note is damage caused by poor design, materials, workmanship, and planning. These kinds of issues are best covered by professional liability coverage. In some areas, you can buy flood and earthquake coverage.

How Much Does a Policy Cost?

Builder’s risk policies typically cost between 1% and 4% of the total cost of construction. However, the cost depends on the kind of coverage options and exclusions stated in the policy. If you need soft cost coverage, you can request your insurer to include the same in your coverage. While this will cause your premiums to increase, in the event of a disaster, it could turn out to be a worthwhile investment.

What about Extensions?

Extensions of coverage can be provided under certain circumstances. Common extensions include:

  • Valuable papers coverage such as blueprints and site plans
  • Debris removal coverage
  • Drain or sewer up/ water damage coverage
  • Fire department’s service charge coverage
  • Scaffolding and temporary structures coverage
  • Property in transit coverage

You should also note this additional information:

  • Your insurance won’t cover others’ property
  • Subcontractors are obligated to carry their own insurance
  • The policy doesn’t cover professional liability
  • It doesn’t cover workplace accidents
  • The coverage typically ends once the building is occupied or completed

How to Buy Builder’s Risk Insurance

If you’re looking for a builder’s risk insurance policy that can adequately protect your construction project, contact our experts at Modab Insurance Services. As an independent insurance agency, we will help you find a cost-effective and customized builder’s risk insurance policy to meet your unique coverage needs. Contact us today to get started.

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