Builder’s risk insurance (AKA “course of construction”) is a type of property insurance specifically designed to cover your property during the construction period. Property may include the building itself and/or building materials and equipment. Once construction is complete and the building is ready to use, your coverage will end and your standard property coverage will take over.
Since every construction project is different, it can be complicated and confusing to choose a builder’s risk policy. Here are some of the main components to consider to help you step out on the right foot as you tackle your next building project.
Who should purchase builder’s risk insurance?
You should consider purchasing builder’s risk insurance for any new construction (commercial or residential), any major home or business renovation, and major installation projects. These types of projects involve additional risks that standard property policies aren’t designed to fully cover.
Typically, the general contractor or the property owner will purchase the policy; however, all parties involved in the construction project (e.g. contractors, property owners, financial/lending institutions, etc.) should also be listed as named insured on the policy.
What does builder’s risk insurance cover?
Builder’s risk insurance protects buildings that are undergoing construction from certain types of damage. It can also cover your building materials and equipment that are on-site, off-site temporarily, or in transit to the job site. Your policy limits should reflect the total completed value of the structure.
Policies will typically pay for damage (up to coverage limits) due to
- Wind (depending on location)
- Collision (aircraft or vehicle)
- Soft costs (depending on policy)
Common exclusions may include damage or loss due to
- Normal wear and tear
- Acts of war or terrorism
- Employee theft
- Intentional damage
Carefully read your insurance policy before signing the contract to ensure you understand all policy provisions and any limitations or exclusions that may apply.
Will I need additional coverage?
Builder’s risk insurance may not cover issues that arise due to design or construction defects or faulty workmanship. Accidents that occur onsite and workplace injuries may not be covered, either. For adequate coverage in these areas, you may need to purchase general liability insurance and workers’ compensation.
How much will a builder’s risk policy cost?
Costs vary by situation and state however This type of policy will typically cost anywhere from 1-4% percent of the total cost of construction. The exact cost will depend on the policy you choose and the number of exclusions and additions it includes. The project itself, as well as the location and various construction details will also affect the cost.
When will the policy start and end?
Policy terms typically can be written for 3, 6, or 12 months. Also you may be able to extend coverage one time Typically, they can be extended one time—if the project is not complete by the end of the term. The official commencement date will depend on your specific policy provisions. For many policyholders, the inception date is the date all contracts are signed. Again, be sure to carefully review your policy in case certain restrictions apply.
The policy end date can also be a bit unclear. Your policy may end 1) when the set term expires, 2) if it’s canceled (due to project completion, abandonment, or cancellation), 3) when the building becomes occupied, or 4) when it begins being used as intended. Coverage will end automatically, based on the conditions stated in your policy.
Have questions about the complexities of builder’s risk insurance. Our licensed agents will assist you in finding the right coverage so you can have peace of mind before, during, and after your next project. Request a free quote today to get started.