Why Do I Need Builder’s Risk Insurance?

home constructionBuilder’s risk insurance, also known as contractor’s all-risk insurance, is a specific insurance type that protects structures while being built or renovated. Under the policy, covered parties are protected against losses or damages resulting from explosions, collisions, vandalism, pollution, hail, lightning, high winds, fire, and other disasters.

In rare circumstances, a city or county ordinance may require you to get builder’s risk insurance. But even if it’s unnecessary, you might want to purchase a policy to safeguard your finances while you construct or remodel your home.

What is Builder’s Risk Insurance?

Coverage for builder’s risk insurance varies widely because it doesn’t have standardized policy requirements, but certain regulations will usually apply to temporary constructions, papers, and data. Policies can also cover the expense of repairing or replacing damaged property and injury claims made by non-employees, so if you have a financial stake in any construction projects, it may be beneficial to invest in a builder’s risk insurance.

Usually, your general contractor will purchase the insurance you’ll need to ensure the job is adequately covered. However, there are cases where the building’s owner or buyer may be required to obtain the coverage. This will largely depend on the purchase agreement between you and your contractor.

Builder’s Risk Insurance Coverage

Builder’s risk insurance covers a wide range of potential damages, including construction-related accidents, natural disasters, material damages, injury claims, and much more. Let’s take a look at a few examples from each of these categories to better understand the policy’s coverage capabilities.

  • Covered natural disasters may include, but not be limited to, fire, lightning, hail, strong winds, smoke, explosions, collisions, hurricanes, and earthquakes. 
  • Material damages may cover defective or misplaced building supplies, papers and data including project plans or blueprints, and temporary structures like scaffolding, fencing, signs, retaining walls, and trailers.

Additionally, equipment costs including the price of maintaining or buying new tools for building may be covered under this policy type, as well as financial loss due to project delays relating to rental income loan interest payments, real estate taxes, or sales revenue.

What Exclusions Are In Builder’s Risk Insurance? 

The builder’s risk coverage will cover not everything related to the project. To make sure your building project is adequately insured, you might need to add an extension or additional insurance policy type. Extensions can cover a plethora of potential damages including:

  • Damage brought on by conflict 
  • Demands for workers’ compensation 
  • Use and abuse 
  • Terrorism and war crimes
  • Employee stealing 
  • Corrosion and rust
  • Mechanical failures 
  • Damage resulting from poor design 
  • Craftsmanship and resources

The Cost of Builder’s Risk Insurance

Typically, a builder’s risk insurance costs range from 1-4% of the total construction project expenditure. So for example, if the building budget is $200,000, you would likely spend between $2,000 and $8,000 in insurance coverage. 

If this price seems high, there are ways to save money. For example, you can purchase a master policy that provides continuous coverage without an expiration date, pay the annual premium upfront or opt for a higher deductible policy. 

Coverage Upgrades 

You can always improve your policy with coverage add-ons and upgrades if you need a higher standard of financial protection. Shopping around can help you understand how you can cover various assets and liabilities as add-ons vary by provider. Additionally, some businesses let you tailor your policy to suit your demands because of how different new building projects can be from each other. 

Frequently chosen extensions and add-ons include protection against flood damage, storms, wind, temporary buildings, debris collection and disposal, pollution removal, and backup sewer options.

Remember that it’s best to discuss your project with a seasoned insurance broker because they will assess every aspect of the project and provide customized coverage based on relevant considerations. 

Final Takeaways

Giving your project structure and definition can assist you in understanding what your builder’s risk insurance policy needs to cover, so it’s important to know the specifications for your project before you begin insurance-hunting. 

Once you have a policy in hand, carefully review it to ensure you’re getting all the coverage, extensions, and add-ons you need to fulfill your coverage needs so you don’t have to deal with any unwelcome surprises down the road.

Comparing prices will help you choose the plan that best suits your budgetary requirements if you’re looking for a builder’s risk insurance. Contact us here and find out about our insurance services.