Builders Risk Insurance

Embroker helps you get builders risk insurance to protect your property that is in the process of being built or renovated. This insurance policy helps protect contractors and developers from common property damage risks such as fire, theft, wind damage, and vandalism.

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What Is Builders Risk Insurance?

Builders risk insurance, sometimes referred to as “course of construction insurance,” is a very specific type of property insurance. This insurance policy was specifically designed to protect a property at which a construction project is ongoing. It can protect an existing building that is being renovated, or it can protect an area at which new property is being built.

Builders risk is typically purchased by the contractor that is in charge of the construction project and most owners will insist that their contractors purchase this coverage. Builders risk does not only protect the buildings or other structures that are being built or renovated, it also protects all of the equipment and materials needed for the project, including not just those that are on-site, but those that are being transported to the job site as well.

These materials that have not yet become permanent parts of the structure are covered by what is called an “installation floater.” This additional coverage option covers the cost of the materials that have yet to be installed on site, protecting the un-owned materials and all of the craftsmen involved in the project before these materials take their final form as part of the finished structure.

Most builders risk policies are written in terms of three, six, or 12 months. The policy term usually can be extended if the project is not completed on time, but most insurers will only allow businesses to extend the policy term once.

Builders Risk vs. General Liability

One of the questions that contracts commonly have when approaching builders risk insurance is how it differs from the coverage that their general liability insurance would afford them.

And while the two policies do seem fairly similar at first glance, they are both needed because they perform two equally important roles in protecting your construction project. As we’ve already mentioned, builders risk is actually more similar to commercial property insurance in terms of the coverage that it offers.

Builders risk insurance covers the contractor’s equipment and property during the construction process, while general liability covers claims related to third-party bodily injury or property damage resulting from accidents that might occur at the construction site.

Construction vs. Renovation

Another question contractors often want answered when learning about builders risk insurance is how the coverage differs if the project is a renovation of an old structure and not the construction of a new building from scratch.

If a renovation project is in question, the builders risk policy needs to be tailored so that both the existing property and the renovation materials are covered in order to make sure that there are no gaps in the coverage.

Contractors that need builders risk insurance should consult their brokers in order to make sure that both the existing structure and the renovation materials and equipment are properly protected by the policy that they put together.

Who Is It For?

Builders risk insurance is also specific for the fact that it can offer coverage to just about everyone that is involved in the construction project.

It’s important to be sure that all parties who are working on and investing in a project are covered for possible damages during the course of construction, including:

  • General Contractors: The general contractor usually should be the first party listed on the policy, because they are the ones who oversee the progress and run the business that is completing the project, which means that the general contractor is probably taking on the most risk out of all parties involved.
  • Developers/Property Owners: The property owner or developer is usually second in line in terms of the amount of risk that a party is taking on. Sometimes the developer will be the first party named on the policy, which is usually a decision that is made in discussion with the general contractor.
  • Subcontractors: Every subcontractor that is involved in the project in some way, whether it’s a roofer or plumber, should be included and covered in the policy so that the builders risk coverage protects them from possible financial damages as well.
  • The Bank: If the developer or property owner has taken out a loan from the bank to fund the project, then the bank also needs to be protected from financial loss should an accident occur during the course of the construction party. If one exists, the mortgagee is almost always listed on the builders risk policy and fully covered.

Since every single one of these parties faces financial risks if something goes wrong, it makes sense that everyone involved receives coverage under one, united policy.

Who Buys the Policy?

If the policy protects everyone involved in the project, the next obvious question is who pays for the builders risk policy?

It would make sense that the party that has invested the most and takes on the greatest amount of risk in the project would purchase the policy. This typically means that either the developer/property owner or the general contractor will be buying the coverage.

The two parties will usually meet to discuss insurance once the entire building project has been laid out and defined, after which a decision will be made on who should purchase the policy.

But as already stated, it’s important to remember that regardless of who buys the policy, every party involved in the project will be protected by it.

Who Doesn’t Need Coverage?

While we have already stated that everyone involved in the construction project should be covered, there are some parties working on the project that, most likely, aren’t at risk of losing anything since they have been paid in advance for their services.

For example, the companies that provide building materials to the contractors or the architects who designed the project usually get paid upfront and, therefore, don’t need to be included in the policy.

Why Do You Need It?

Builders risk insurance exists because of legal principles that need to be considered when it comes to new construction projects. According to common law, courts consider a construction project as property as soon as the construction or renovation project begins.

This means that whoever is responsible for the project is also responsible for any damages or injuries that occur during the course of the construction project.

Property owners purchase commercial property insurance to protect their buildings and work equipment. In that same way, they must purchase builders risk insurance to protect the equipment and property while the construction of the property is ongoing.

What Does Builders Risk Insurance Cover?

Typically, these are the risks that a builders risk insurance policy will protect against:

  • Weather Damage: If your construction project is damaged by weather events such as wind, lightning, rain, or hail, builders risk insurance will provide coverage. However, if you want protection for more severe damage related to natural disasters like hurricanes and flooding, you are going to have to purchase separate riders to provide additional coverage.
  • Fire or Explosion: Builders risk insurance will cover the cost of replacing or repairing construction items and unfinished structures that are damaged as the result of a fire or explosion.
  • Vandalism: Broken windows, tagged walls, and any other form of vandalism can set your construct project back considerably in terms of both time and cost. Builders risk insurance will reimburse contractors for damage occurring as a result of vandalism.
  • Theft: If any materials or equipment are stolen off your site by a third-party, builders risk insurance will compensate you for stolen items and materials. It will not, however, cover employee theft.

When you are putting together your builders risk coverage, it’s very important to make sure that your coverage limit reflects the expected total value of the completed construction or renovation project as well.

What’s Not Covered?

As already mentioned, natural disasters such as earthquakes and tornados are not covered by builders risk. Contractors or developers will need to add a severe weather endorsement to the policy in order to address those types of risks if they do exist.

Common Exclusions

Anyone purchasing a builders risk policy needs to make sure that they are aware of the limitations and exclusions that the policy includes:

Some standard exclusions that are often written into a builders risk policy include:

  • Employee Theft
  • Water Damage
  • War and Terrorism
  • Government Action
  • Contractual Penalties
  • Mechanical Breakdown
  • Faulty Design, Planning, Workmanship
  • Employee Injuries

What Does Builders Risk Insurance Cost?

We already talked about the importance of being aware of the budget of your construction project when discussing your coverage limits. But to reiterate, the policy limit should be close to the value of the finished structure when all costs are taken into consideration (materials, labor, land value, etc.).

Knowing your construction costs will also help you to get a good idea of how much you can expect to pay for your builders risk policy as well.

A builders risk policy usually costs between one and four percent of your construction costs. Naturally, the number of exclusions and your specific coverage needs will dictate the costs most prominently.

The greater the projected costs of your construction project and the more endorsements you need to include to avoid typical exclusions that could pose risks to the developers and contractors, the more you will pay for your policy.

When Does Coverage End?

Your builders risk insurance policy expires once one of these events occurs; the property is sold, the property is occupied, or the policy itself expires.

Once your builders risk insurance expires and is no longer valid, it is important to secure the right property insurance to protect the finished product, be it a commercial property policy or a homeowner’s policy.

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