Builders Risk Insurance Cost and Coverage Guide

Starting a new construction project is exciting. You have plans. You have a vision. It might be your dream home. Or perhaps it is a new commercial building. But what if the things go wrong? With my years of experience in the insurance industry, I have witnessed projects that get derailed by unexpected events. That is why Builders Risk Insurance is so important. It’s your project’s financial insurance.

This guide will help you let you go through everything. We will cover costs. We will explore coverage. In addition, we will clarify all your questions. We would like you to develop your confidence to build. Let’s protect your investment from your very first day if your investment is secure or not. This is your base for being on a secure project.

Part 1: The Core Fundamentals of Builders Risk

Before we go too deep let’s start from basics. You need to have a good understanding of this coverage. It is the initial step of making informed decision in the financial health of your project.

What is Builders Risk Insurance?: A Simple Explanation

So, What’s builders Risk Insurance? The best way to think of it, however, is to think of temporary property insurance. It is designed for use on buildings under construction specifically. This type of policy represents a policy to protect your financial interest in the structure. In addition, it includes the materials on the job site. The coverage lasts out for the duration of the project.

This differs from normal property insurance. A regular homeowner’s policy won’t be all-inclusive in the case of a new build. Neither is a commercial property policy. You need a type of builders risk insurance policy that understands, well, builders risk at a construction site. It’s a very important aspect of your risk management strategy.

“The best prediction of the future is to create it.” – Peter Drucker

This quote drives home the point the building is about creating the future. Insurance is simply something to help protect that future in which you are building.

A Simple Builders Risk Insurance Definition

In short, the builders risk insurance definition, is a special type of inland marine insurance. It helps protect the buildings and structures during constructions or renovations. This includes losses from different events. For instance, it includes risks such as fire, wind, theft etc.

The policy is commonly referred to as “course of construction” insurance. This name perfectly describes what it is used for. It covers the project during the whole building phase. Therefore, it is a must for all those involved in a building project.

The Main Goal: Protecting Your Major Investment

Why is this such an important policy? Your construction project is a very large investment. It includes material, labor, and much more. Imagine that the framing is damaged by a strong storm. Or fire destroying your stored material. Without insurance, you would have to pay these costs by yourself.

Such a loss could be financially devastating. It might cost you to relegate your project for months. Or worse still, it could bring it to a complete end. Builders Risk Insurance comes in to cover these losses. This gives you an opportunity to mend the using the damage. As a result, you can more easily get your project back on track without having to lose your entire investment. It’s a smart means of finding cheap business insurance for your building exertion.

Part 2: Who Absolutely Needs This Coverage?

You may be wondering whether this is relevant for you. The answer is most likely going to be yes if you are constructing something. Several parties are involved in a construction project. Let’s have a look at who should covered.

Understanding Who Pays for Builders Risk Insurance

The question concerning who pays for builders risk insurance is a common one. Often, such policies are the purchase of the property owner. This means that they have direct control over the coverage. However, sometimes, it is purchased by the general contractor.

The construction contract should allude to this. It will identify who has the responsibility of securing the policy. If it is purchased by the contractor, the owner should named as an additional insured. This way everybody’s interests are assured. Communication is the key to not having any gaps in coverage.

Property Owners and Homeowners

If you are to build your own home, you have to get protection. A builders risk insurance for homeowner policy is a must. Your standard homeowners policy will not cover a house to constructed. Here you are investing your life savings. You cannot afford to make it unprotected.

This policy will be for the structure as it goes up. It is also a fire safety precaution in case there are materials you have on site. For example it would include lumber, windows and fixtures. Without it, one single act of vandalism or a fire would be a financial nightmare.

General Contractors and Builders

Contractors have a huge responsibility. They monitor the entire project. A builders risk insurance is used to protect their interest in the job. If a disaster occurs the coverage of the insurance company takes care of the costs to rebuild. This saves the contractor from bringing about a huge financial loss.

Besides, many project owners need it. They will not hire a contractor who lacks proof of such insurance. This indicates you are a professional person. It also shows that you are ready for the unexpected. This is just as important as having good commercial auto insurance on your work vehicles.

Subcontractors

Subcontractors also have an interest. These may include plumbers, electricians or roofers. Their work and their materials are part of the project. If their work they have installed gets damaged, they could lose out.

While often the primary policy addresses the work that they do, it’s important to check. Some subcontractors have their coverage. Others have been covered under the general contractor’s policy. Always make this clear in the subcontracting agreement that you have to avoid any confusion.

Lenders and Financial Institutions

Banks and other lenders have a great stake in it financially. They are loaning you the money to make the build. They want to make sure that their investment portfolio is safe. It is for this reason that almost all construction loans require Builders Risk Insurance.

The lender will have to named as a loss payee on the policy. This means no claim, they get paid along with you. It ensures that the money is used to rebuild them, ensuring their collateral is protected.

Part 3: What Does Builders Risk Insurance Cover?

It is extremely critical to understand the specifics of your coverage. You have to know what is being protected. And you need to know what’s out. So let’s dissect the details of a typical policy.

Standard Builders Risk Insurance Coverage Explained

A standard policy offers blanket protection. It is meant to address the most common risks of a construction site. Think of it as being the basis of your plan of protection.

The Building or Structure

The first coverage is for the building itself. This includes the foundation. It covers the framing. It also protects all that is made permanent a part of the structure. For instance, this includes roofing and walls as well as installed systems.

On-Site Materials and Equipment

Construction sites are filled with useful materials. This can be lumber, drywall, and windows. It could also include plumbing fixtures as well as electrical wiring. The policy applies to these items if they are on-site and waiting to installed.

Temporary Structures

Temporary structures are extremely common in projects. Scaffolding is one such common example. Fencing, construction forms and even temporary office trailers can covered. These are critical in the completion of the project.

Common Perils Protected Against

The builders risk insurance cover is usually “all-risk.” This means that it covers everything except everything that it is expressly excluded from covering. Some of the most popular insured perils are:

• Fire: A major cause of construction site claims.
• Wind and Hail: Particularly important with areas that are prone to storms.
• Theft: Construction sites are hot spots for thieves.
• Vandalism: Security does not spare institutions from the effects of malicious damage.
• Explosion: Risk of gas lines or risk from some other source.
• Vehicle or Aircraft Damage: An errant vehicle can do major damages.

These protections are what your policy is all about. They tackle the most common and expensive risks. Without them your project is in grave risk.

What Is Typically Not Covered?

What we know about a given problem’s exclusions is as important as it is. No policy covers everything. Common exclusions in the standard are:

Earthquakes and Floods

Damage caused by earth movement and flooding is generally excluded. If your project is in an area where it is at high risk you must add this coverage. This is done by means of a special endorsement. This will increase your premium but it is absolutely necessary.

Faulty Workmanship

The policy includes damage through faulty work. For example, the fire damage is covered if a fire is caused by bad wiring. However the cost to redo the faulty wiring itself is not covered. That is a performance problem and not an insurable accident. This is where professional liability insurance can prove to be a lifesaver for contractors.

Employee Theft

If your own employee steals tools or materials, this is not covered. This type of risk is covered by another policy. You would need Commercial Crime or Fidelity Bond.

Normal Wear and Tear

Insurance is for sudden and accidental events. It does not consider gradual deterioration. Rust, corrosion or mechanical breakdown are not included. The proper maintenance is up to you. It is like taking care of your classic car insurance policy, maintaining your classic car insurance prevents claims.

Part 4: The Financials: Understanding Builders Risk Insurance Cost

Finally, now for the big question we are all asked. How much does builders risk insurance cost? The cost varies widely. There is no single answer. However, we can break down these factors that determine your premium.

General Cost Estimates

As a rule of thumb, builders risk insurance cost is usually 1 percent to 5 percent of the total construction cost. For example, on a $500,000 project, $5,000 to $25,000 would be what you should expect to be paying for your policy term. This is a broad range as so many factors are involved.

This is a small premium to pay. It saves a half million dollar investment. Trying the cut costs by not obtaining this coverage is a huge gamble. It’s penny pinching and pound foolish.

“An ounce of prevention is worth a pound of cure.” – Benjamin Franklin

This timeless wisdom is perfectly applicable to insurance. The current payment of a considerable small premium saves a disaster in terms of money later.

Key Factors That Influence Your Premium

A significant number of details is considered by an insurer when determining your rate. They are determining the level of risk. Well, the higher the risk the higher the premium. Let’s have a look at the most important factors.

Project Value and Scope

This is the biggest factor. The more total cost of the project, the higher the premium. This makes sense. The insurer has more financial exposure on a larger scale, expensive project. A skyscraper will be more expensive to insure than a single-family home.

Type of Construction

The materials you use matter. A wood frame building is more fire prone. Therefore, it will take more to insure than a steel-frame or concrete building. Construction types are classified by the type of fire resistance by insurers.

Project Location

Where you build is crucial. A project in a high crime area will have a higher premium. Similarly, the cost of a site located in a coastal region prone to hurricanes will be more expensive. The insurance company will examine the local weather patterns, the crime rate and the fire protection services.

Contractor’s Experience

The track record of the builder is very important. A contractor with a history of safe successful projects is a lower risk. They will probably have a better rate than a new and unproven builder. Insurers trust experience. A great safety record is sometimes used to help reduce your other premiums, such as your motorcycle insurance.

Using a Builders Risk Insurance Cost Calculator

You may find a builders risk insurance cost calculator on the internet. These tools are available to provide a rough estimate. The Project Definition: You put in basic project info. For example, you have project value, location and construction type as input. The calculator then gives a potential cost.

However, these are Unofficial quotes. They are only approximate figures. A calculator cannot take into account all the specific details on your project. It has no idea what your contractor’s history is. Neither does it know of your security measures. Use them for just initial budgeting but always get a formal builders risk insurance quote from an agent.

Part 5: Expanding Your Protection with Optional Coverages

A standard policy is great, but it may not be sufficient. Construction project has an complicated financial fit. You can include endorsements into your policy. These are to expand your builders risk insurance coverages to defend against more specific threats.

Soft Costs Coverage

What if a covered loss puts your project behind schedule? You still have expenses. These are called “soft costs.” Not direct construction costs but they add up fast. Soft costs coverage can used to pay for:

• Loan interest payments.
• Real estate taxes.
• Architect and engineering costs.
• Legal and accounting expenses.
• Insurance premiums.

This coverage is vital. It keeps your project financially safe in the event of a delay. It helps in making a temporary failure temporary rather than a permanent setback.

In-Transit and Off-Site Storage

Not always are your materials on the job site. They are transported there. Sometimes, they are kept in a warehouse at an off-site location. A standard policy only covers the materials located on the project premises.

This is an endorsement of the extension of coverage. It is used to protect your masses while they are in transit. It also covers them while in temporary, off-site storage. This has the tale of revising a potentially expensive hole in your protection. You do not really want to lose a truckload of windows before they get anywhere. It’s the same thing to having the need of special coverage for temporary car insurance when you’re between vehicles.

Debris Removal

The aftermath of a fire or a major storm, you are left with a mess. You will have to clear the ruined materials and rubble. This is a major unexpected expense. The debt of the debris removal is sometimes very expensive.

This coverage helps to pay for that cleanup. It assures that you have money to clear the site. This way you will be able to begin the rebuild faster. Without it, clean up costs would come straight out of your pocket.

Ordinance or Law Coverage

Building codes also change over time. Imagine that your partly built structure is damaged. And when you rebuild you might need to comply with new and stiffer codes. This can bring a substantial cost to the repairs. For example, you may have to include a sprinkler system that was not originally planned.

Ordinance or Law coverage to assist in paying for these mandatory upgrades. It deals with the higher cost of construction as a result of new laws. This is important for areas where building regulations are evolving and hence for projects A & DP areas.

Part 6: Policy Logistics: From Purchase to Claim

You know about the coverage and the cost. We are ready with the theoretical part, let’s discuss the practical ones now. How do you get a policy? When does it start? And what do you do if you have to make a claim?

How to Get a Builders Risk Insurance Quote

The first step is to obtain a quote. You should not just go with the first offer. It pays to shop around. Here is the process:

1. Gather Your Documents: You will need your project plans, budget and timeline. You’ll also need information on your general contractor.
2. Contact an Independent Insurance Agent: It is the best asset for an agents who focuses in construction insurance. They are compatible with several carriers. This means that they can provide you with the best coverage at the best price.
3. Compare Quotes: Try not to just check the price. Compare the builders risk insurance coverages. Look at the deductibles. Check the exclusions. The policy being the cheapest is not always the best policy. Some people prefer working with established names like State Farm for life insurance, the same theory applies here: reputation is everything.

When Does Coverage Begin and End?

This is a critical detail. The builders risk insurance policy should always begin before materials arrive to the site. Ideally it starts the day you close on the construction loan.

Coverage also usually ends once the project is complete. The policy will outline what “complete” will entail. It could be when:

• The building is occupied.
• The certificate of occupancy is provided.
• The policy term expires.

Once the project is completed, you are required to convert to a permanent property insurance policy. This may either be a homeowner’s policy or a commercial property policy. There should be no space between the two.

“A goal without a plan is like a wish.” – Antoine de Saint-Exupéry

Your plan must include the beginning and end date of your insurance. Wish for coverage doesn’t amount to much; you have to plan for it.

The Claims Process: What to Do After a Loss

No one wants to file a claim. But if you must, then you must act quickly. Here are the steps to follow:

1. Ensure Safety: First and foremost you should make sure everyone is safe. Control the site to prevent additional damage/injury. The U.S. Occupational Safety and Health Administration (OSHA) offers great resources on the safety of the construction site.
2. Document the Damage: lots of photos and videos of everything. Never throw away anything before the insurance adjuster has seen it. The friend of the devil is detailed documentation.
3. Contact Your Insurer: Report the insurances claim immediately. You can go through the process being helped by your agent. They will send one of their adjusters to appraise the damage.
4. Mitigate Further Damage: Take reasonable steps to protect the property from further damage. For example, place a tarp over where there may be water damage to the roof. This is something that is required of you by your policy.

The claims process can complicated. Working with an experienced agent will make this much easier. They are your advocate.

The Role of Other Insurance Policies

Builders Risk Insurance is only a small part of the picture. A construction project requires a complete set of coverages. These might include:

• General Liability Insurance: Covers the third-party-injuries or damages to their property. For instance a visitor is hurt into your site.
• Workers’ Compensation: Used to cover the medical bills and lost wages for an employee who gets injured on the job. This is required by law in most states.
• Commercial Auto Insurance: Cover operating vehicles which are used for the business. This includes trucks for carrying materials and equipment. Visit our guide to reducing your cost of car insurance for more tips.
• Professional Liability Insurance: Covers architects and engineers from liability claims that they made mistakes or did work on a negligent plan.

The comprehensive insurance plan consists of various policies working along with each other. Each of them concerns a different type of risk. It’s like having different types of health plans you might have a PPO or HMO for your health needs like those from Humana Dental or United Healthcare and they each have a specific use.

This is a multi-policy approach that is a best practice endorsed by industry leaders such as the Insurance Information Institute. The point is not to leave any areas of your protection uncovered. You must think of all potential possibilities from term life vs. whole life for personal security to the best business policies for professional security.

Leading construction groups, such as the Associated General Contractors of America (AGC) also stress the need of a comprehensive risk management program with builder’s risk at the forefront.

Conclusion: Building on a Secure Foundation

Your construction of a building is more than just bricks and mortar. It is a dream, an investment and a future. It is something we must save, not have the option to save. Builders Risk Insurance is the exact tool that is designed for this job. It gives you the peace of mind you need to do what you do best: build.

From knowing the basic builders risk insurance definition to knowing the ins and outs of cost and coverage, you now have knowledge to hand. You know what does builders risk insurance cover, and what it does. You have an idea about the factors that control the builders risk insurance cost.

Don’t take your project out of safe keeping from the dangers of fire, theft or weather. Take the next step. Talk to a people qualified in this area of insurance. Get a custom builders risk insurance quote. Secure the most secure bases for your future that you can.

Frequently Asked Questions (FAQs)