Builders’ Risk Insurance 101
All these risks result in monetary losses for builders, engineers, general contractors, and building owners. In some cases, the losses may be so big that you’d end up with zero profits on the project.
That’s where builders’ risk insurance comes to the rescue. Here’s a detailed guide to teach you everything you need to know before going insurance shopping.
What Is Builders’ Risk Insurance?
Who Needs Builders’ Risk Insurance?
Builders’ risk insurance is necessary for any party with a financial stake in a construction or renovation project. The following professionals can benefit from this insurance coverage:
- Building owners
- General contractors
- Development companies
What Are the Benefits of Builders’ Risk Insurance?
Builders’ Risk Insurance Coverage: What Does It Cover?
Builders’ risk insurance provides coverage for several problems, including but not limited to:
- Natural disasters
There’s no standard list of items a builders’ risk insurance plan covers. You’ll have to speak to your insurer for more details. But a general plan will cover:
- Important construction documents like electronic records and blueprints
- Under construction structures like fencing, scaffolding, storage buildings, etc.
- Supplies and materials
- Construction signs
- Plants and trees
Many builders’ risk insurance policies also cover ‘soft’ costs, which result from delays in construction projects. These costs may include rental income, real estate taxes, lost sales income, and additional interest incurred on construction project loans.
Some other exclusions include:
- Wear and tear
- Employee theft
- Damage resulting from faulty or poor design
- Acts of terrorism
- Mechanical breakdowns
How Much Does Builders’ Risk Insurance Cost?
The typical cost of builders’ risk insurance is $95 per month. However, the price could be higher or lower based on your structure’s complete value.
Factors Affecting the Cost of Builders’ Risk Insurance
Some factors that affect the cost of builders’ risk insurance are:
- Materials: The more materials you have on-site, the higher your premium will be. Likewise, the cost of materials will also determine the monthly payout.
- Coverage Options: You can choose between named perils and all-risk. If you select the former, you’ll pay less because your insurance will only cover the issues you’ve selected. Meanwhile, the latter costs more because the insurer would have to pay for all sorts of damages.
- Deductible: A higher deductible means you’ll have to pay a lower premium
When Does the Builders’ Risk Insurance End?
The builders’ risk insurance is a temporary policy. So, it doesn’t have a long-term period. Instead, it ends based on the period specified in your policy.
The policy may end when:
- Construction ends
- You cancel the policy
- Building starts serving its intended use
- Building is occupied
How to Select the Right Builders’ Risk Insurance Plan?
Before you start shopping for a builders’ risk insurance policy, determine who needs to purchase the policy. For example, if you’re an engineer or a subcontractor, you may not have to buy a plan. Your building owner or contractor may purchase a policy and list you as additional insured.
But if the contract obligates you to get builders’ risk insurance, here’s what to do.
Decide the Amount of Coverage You Need
What are your risks? Does your area get significant rain or hail? Is there much vandalism or theft? Evaluate all the risks and determine how much coverage you need.
Estimate the Coverage Duration
All well-managed construction projects have a pre-specified timeline. Use it to determine how long you need the coverage.
For example, you may still need coverage after construction has ended because you want it to extend till the building is occupied. Communicate this with your insurer to avoid issues later on.
Understand the Policy Offerings
Not all builders’ risk insurance policies are the same. Read the policy’s terms and conditions carefully. Also, check the exclusions to avoid costly surprises.
Builders’ risk insurance policy is a must-have for builders, building owners, and contractors. Even if you believe your construction site is risk-free – which it most likely isn’t – many state laws and client contracts will legally bind you to get this insurance.
So, do thorough research and compare several plans before you choose coverage for your project.