Builder’s risk insurance is a special type of property insurance designed to protect your property under construction. The insurance offers protection against all kinds of damages caused by fire, theft, vandalism, and natural disasters. The builder’s risk insurance covers anything that affects the construction process or the building currently under construction. It’s a short-term, temporary policy that covers the property till the project is completed.
Some clients require construction workers and building companies to have a builder’s risk insurance before they start work, while others buy it just to mitigate the risk of financial loss due to unexpected issues at the construction site. In this post, we are going to walk you through everything you need to know about this insurance type, the level of coverage it offers, and who should get it.
Who Should Get Builder’s Risk Insurance
The policy is the best for anyone who’s financially involved in the construction project. It mainly includes contractors, architects, and building owners. In addition to these, the investment companies that have put their money into the building, engineers who approve of the designs and oversee the entire construction project, contractors who take care of the construction material, and builders who carry out the project should consider getting this insurance.
Builder’s Risk Insurance Coverage
Depending on your insurance provider and the construction work, your insurance policy will cover the property on the construction site, which gets damaged from fire, explosions, vandalism, hurricanes, and other factors.
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The policy also covers the construction materials stored on-site, as well as, in other storage spaces. Some policies might cover the debris removal and cleaning costs of the construction area. It’s important to carefully review the policy, as there’s no specific template for builder’s risk insurance. Here’s what to look for.
Damaged Material: Each policy will cover the construction site, whether it’s a residential property or commercial. It can be a new building or renovation to the existing property. The policy will also cover any kind of damage to the materials when they are being transferred from off-site to the construction site. However, it excludes certain things, which you can buy as add-ons.
- Data and documents, including the blueprint of the building.
- Soft cost
- Signs and other temporary stuff
Other Costs You Incur Due to Property Damage: Property damage doesn’t just incur the cost of damages to the property and construction materials, but it also includes additional costs, such as the cost of cleaning up the area.
Labor: Some policies may cover bodily damages to your labor while they are at work. Although you may have to buy worker’s compensation insurance for that, certain builder’s risk insurance cover labor cost.
The coverage also depends on the policy you buy. Some policies cover only the cash value associated with the damaged building, while other policies cover the replacement cost of the building. The better the payout, the larger the premiums. So, the coverage usually depends on the type of policy you choose and the level of coverage needed.
The best part about the policy is that it covers everything that damages the property under construction, except what’s specifically excluded from the policy. The most common examples of the damages not covered in the policy are earthquakes and floods. There are special insurance policies for property damages due to these natural calamities. In addition to these, here’s what these policies exclude:
- Defects in the construction or any flaw that occurs because of worker’s, architect’s, or contractor’s negligence.
- Work vehicles. There’s commercial automobile insurance that covers all your work vehicles, which are used to transfer goods from one place to another and conduct other business-related operations.
- Wear and tear
In addition, the insurance also excludes any damage that occurs to the property after the construction is over. As mentioned earlier, it’s a temporary policy that lasts until the construction is over. For post-construction safety, you can get business property insurance, which does the same work as builder’s risk insurance. It protects the constructed buildings from fire, theft, vandalism, and other damages.
How Much Does the Insurance Cost?
Builder’s risk insurance comes with different premiums depending on the level of coverage you need, as well as, the cost of construction. Typically, its cost ranges between 1 and 5 percent of the total value of the construction. Let’s say you have a fixed construction budget of $100,000 for 3 months. Even if you get the cheapest insurance, you will pay $300 a month in premiums for the next three months. There are a few factors that affect the cost of the builder’s insurance policy, including:
- Duration of the project
- Location and cost of the construction project
- Coverage amount
- Materials used in the construction
- Off-site location of these materials and other equipment used in the project
It’s important to understand your construction budget before buying a builder’s risk insurance. It’s easier to decide on a premium when you know the worth of your construction project.
Finding the Right Dealer for Builder’s Risk Insurance
Buying a builder’s risk insurance is similar to buying other types of insurance. You must consider the risk, compare insurance costs, and choose a plan that fits your budget and requirements. Start by deciding the level of coverage needed. You can decide that based on the risk involved. Consider your construction site, storage of the material, transportation, and other costs to determine the ideal coverage for your construction project.
You must also decide when you’d like the coverage to start. It should usually begin once the contract is signed and ends once the construction is over. Any damage to the property after the construction won’t be covered by the policy. A policy can expire right after the construction is done or once the property is occupied. Another important thing to note is the coverage. Make sure you read the terms and conditions of the policy carefully and see if it covers everything you need.
Lastly, you must compare different insurance providers and get multiple quotes. You can buy add-ons for a few extra dollars to extend your coverage.