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How much does builders risk insurance cost and do I need it to keep my business safe? The coverage that a builders risk insurance policy provides is fairly self-explanatory.
Often referred to as “course of construction” insurance, builders risk protects against damage or loss incurred by buildings that are being constructed or renovated.
It usually covers losses related to events such as fires, wind, vandalism, storms, theft, and more, depending on your insurance provider and the policy that you have purchased.
This policy usually covers not just the building itself, but also other property pertinent to the construction project, such as temporary structures, building materials, even documents or data that are being housed at the project location.
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As already mentioned, builders risk insurance doesn’t just cover projects during which new structures are being built, it can also be purchased to protect existing buildings that are being renovated or upgraded.
Builders risk insurance is actually a specialized form of commercial property insurance. It can be purchased either separately as a stand-alone policy or as an add-on or endorsement to an existing property or inland marine insurance policy.
In most cases, a builders risk insurance policy is designed to expire when your construction project is finished.
Let’s take a closer look at what this insurance policy typically covers and doesn’t cover, as well as what you can expect to pay for it.
Who Needs Builder’s Risk Insurance?
Anyone involved with the construction project can purchase the builders risk insurance policy. Some assume that it’s a policy that only construction companies or contractors buy but in reality, anyone who has any type of financial interest in the project and property can purchase the policy.
Local government agencies will typically ask for proof of insurance before they grant you a building permit for the project. Governmental agencies want to see that you have a builders risk policy in order to confirm that your project complies with local building codes.
It can be purchased by construction companies, contractors and subcontractors, but also the building’s owners, and engineers and architects that are involved in the project.
In most cases, only one party will buy the actual policy. However, they will usually add the other relevant parties to the policy as named insureds by way of an additional insured endorsement.
As we’ve already discussed, a builders risk insurance policy covers losses and physical damage caused by storms, fire, wind, theft, vandalism, various contamination (fungus), and even vehicle and aircraft collisions with the property.
Some builders risk policies will also cover damage to building materials and temporary structures associated with the project.
If these things are not covered by the policy, it might be a good idea to purchase a business interruption insurance policy as well, so that you can have coverage in the case that your project is delayed because of damage incurred to building materials or temporary structures that need to be rebuilt before the project can move ahead.
A preferred builders risk policy will cover construction materials, documents and data (such as blueprints and other construction specifications), scaffolding, signs, and other temporary structures.
The policy can also cover what construction companies often refer to as “soft costs.” Soft costs can be things such as additional real estate taxes and any possible penalties owed to local governmental agencies.
Some builders risk policies will also cover costs such as debris removal in the event of property damage to structures and building materials that will need to be removed from the property before the project can recommence.
Just like with commercial property insurance policies, the policyholder can choose between purchasing a replacement value or actual cost policy. A replacement cost policy costs more since an actual cost value policy covers the depreciated value of the damaged property while the replacement cost policy will cover the cost of the materials when new.
Just like any other insurance policy, a builders risk policy has common exclusions that will not be covered. Exclusions usually consist of events that are typically covered by other insurance policies.
For example, if one of your workers steals building materials and other property from the site, a builders risk policy will not cover these damages as employee theft losses are typically covered by a commercial crime policy.
Damages to your work vehicles won’t be covered by a builders risk policy either, because these types of damages are typically covered by a commercial auto insurance policy.
Earthquake and flooding damages typically aren’t covered by builders risk or commercial property insurance, but if you need this coverage, you can purchase specialized policies to protect your project from these types of risks if earthquakes or flooding are common occurrences in the location where your construction project is taking place.
A builders risk policy won’t cover flaws in design, workmanship, or manufacturing defects either. These types of damages are typically covered by some type of professional liability coverage that should be purchased by contractors, subcontractors, architects, and engineers as a guarantee for the quality of their work.
The policy language on exclusions can vary greatly from one insurer to another, which is why it’s incredibly important to work with a dedicated and experienced insurance broker or agent when putting together your builders risk policy.
How Much Does Builders Risk Insurance Cost?
To get a good idea of what a builders risk insurance policy costs, it’s important to understand the factors that will affect the cost of your policy.
Most insurance policies take into consideration the characteristics of your business, such as how many employees you have, how much revenue you earn, and the size of your company.
However, the cost of builders risk insurance relates more specifically to the characteristics of the construction project in question.
When calculating a premium for this policy, insurers will look at the following factors, among others:
- How much the project costs
- Where the project is located
- The experience level of the contractors and subcontractors involved in the project
- How long the project will take to complete
- The quality of your building materials
- The size of the construction site
When insurers are asked by clients how much they can expect to pay for builders risk insurance, a common calculation that usually gives a good estimate is that the policy will cost 1-5% of the construction project’s total budget.
Coverage Limits and Construction Types
Another thing to note about builders risk insurance is that there are many coverage limits that you can choose from when purchasing your policy.
Many times, insurers offer different coverage limits and coverage prices based on the classification of the construction project.
This is very important information because rates can vary up to 50% depending on the type of construction project you are insuring.
Also, if you don’t answer this question correctly when purchasing your builders risk policy, there’s a good chance that you can have a lot of problems if a claim arises.
In some cases, an insurer might even deny the claim if the classification of the construction project on the policy is incorrect.
Some common construction types include:
- Frame: Buildings where the walls, floors, and roofs are made of wood or another combustible material.
- Joisted Masonry: Buildings with roofs, floors, beams, and supporting joists made of combustible wood materials but exterior walls made of stone, brick, or concrete.
- All Steel: Buildings with roofs and walls constructed of steel or aluminum sheet metal.
- Masonry Noncombustible: Buildings with walls made of stone, brick, or concrete with floors and roofs made of some type of non-combustible materials.
- Fire Resistive: Buildings that are specifically designed to withstand an interior fire for a period of several hours.
Obviously, the highly combustible and flammable properties will be more expensive to insure. If you don’t know what type of materials your building is made of, your insurer will usually place the property in the most expensive “frame” class code.
This protects the insurer in the case of an expensive fire-related claim that destroyed the entire property.
If you’d like to learn more about builders risk insurance and discuss your business’s insurance needs with an insurance expert, don’t hesitate to reach out to one of our experienced brokers at any time.
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