Builders Risk Insurance: 

Protection While Under Construction

Construction sites are prone to risks such as vandalism, theft, and weather damages. Thus, the building or structure needs protection while it is under construction. Builders risk insurance helps to safeguard against loss that occurs due to these risks.

What is builders risk insurance?

Builders risk policy, also known as the course of construction insurance, is a specialized commercial property insurance that covers structures or buildings while they are under construction. The plan is available for these establishments:

  • Ground-up new construction
  • Remodeling/ Renovation
  • Installation

The risks associated with construction sites are vast. Likewise, a small electric hazard can cause severe damages to the building in construction. Builders all risk insurance can protect both business owners and property owners from exposed losses. The coverage can also include machinery, materials and supplies, and equipment in the construction site.

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Who needs this policy?

Anyone who has an insurable interest in construction projects need builders risk coverage. Following are some of them:

  • General contractors: Equipment, tools and supplies, and materials used in construction belong to the contractors. In most cases, contractors or sub-contractors who have undertaken the construction project get this policy.
  • Building or property owner: Building owners also purchase this policy if their builders do not have this policy.
  • Others: House flippers, development companies, retail companies may also buy this policy.

In addition, lenders or lending institution may also require owners and contractors to get this policy.

How does builders risk insurance work?

The insurance is a temporary policy since it provides coverage in the course of construction or renovation/remodelling. It is usually purchased for specific terms such as three, six, or twelve months. The policy can be extended before it ends but typically only one time. The protection ends when these events occur (whichever is the earliest):

  • Occupancy
  • Closing of the sale
  • Abandonment of project
  • Expiry date of the policy

What does a builders risk insurance policy cover?

The coverage of each policy vary from carrier to carrier. These properties have protection under a basic this insurance:

  • Structure/building
  • Materials
  • Supplies and tools

Adding endorsements can extend protection to equipment, machinery, and unattached structures like trailers, fences, and so on.

The policy provides these coverage against these risks:

  • Weather damages: Builders risk insurance provides coverage for damage caused by fire, hurricane, lightning, tornado, hail, and other natural disasters.
    For example, your construction business is building a commercial building, and 50% of the work is complete. Unfortunately, a storm hits the area and destroys the site’s progress. The policy would give you compensation to cover the cost of materials and labor used so far.
  • Theft and vandalism: Builders risk insurance will cover the risk of theft and destruction during the project. Equipment, supplies, and tools are most vulnerable to these risks. As per Annual Theft Report 2016 by National by National Insurance Crime Bureau and National Equipment Register, cost of equipment theft varies from $300 million to $1 billion.
    For example, our construction business has a new project in a high crime area. After a few weeks, there is a break-in, and most of your expensive equipment gets stolen from the site. The insurance reimburses you for the cost of the stolen property.
  • Vehicles/Aircraft damages: Builders risk insurance also compensates damages made to the structure due to vehicle or aircraft crash.
    For example, your business is constructing a residential building. One day a truck crashed into the building and caused severe damage to the ground floor. Your policy covers the cost of materials and labor to reconstruct the ground floor.

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Extensions and endorsements you can add

Your policy may not cover all the risks. These additional endorsements can help to extend the protection.

  • Materials and property in transit: An inland marine insurance can help protect properties from damages when they are transported from one location to another.
  • Scaffolding: Coverage can extend to cover scaffolding and temporary structures.
  • Valuable papers coverage: Valuable paper coverage helps to protect important papers like blueprint and site plans.
  • Delay in completion: You can add an extension to cover loss of income due to delays in projects because of physical damage. As per NBCBayArea, Santa Clara County filed a lawsuit against Turner Construction over delayed project in 2015. If any physical damage to the property was the cause of delay, this extension would surely cover the costs.  

The endorsement also covers any extra expenses incurred during the suspension. Likewise, soft costs include administrative expenses, inspection fees, advertising, and promotional expenses, additional construction loan interest, real estate taxes, engineering fees, and costs of renegotiating contracts.

  • Property in temporary storage facilities
  • Debris removal
  • Equipment and machinery breakdown coverage
  • Backup of drain and sewer

Standard exclusions in a builders risk insurance

The policy does not cover all the risks that can happen in the construction site. Common exclusions include:

  • Workplace accidents and injuries: It would be best if you had a separate workers’ compensation insurance to cover for accidents.
  • Third-party liability: It would also help to go for general liability insurance to cover third-party liability.
  • Faulty design and planning
  • Employee dishonesty and theft
  • Mechanical and equipment breakdown
  • Acts of war
  • Water damage
  • Earthquake
  • Intentional damage

What are the types of insurance that include the builders risk policy?

How much does a builders risk insurance cost?

The cost of insurance is based on the project, duration, location, and quality of materials. Typically, premium ranges from 1% to 4% of the total project cost. The major determining factors of premium are:

  • Project location: Chances of perils such as hail and wind, depending on the geographic location, increase the cost of insurance.
  • Renovations and remodeling projects: Protecting an existing structure during a major renovation increases the premium costs. As per CBSNews, Notre Dame Cathedral was undergoing a remodel of $6.8 million when the fire broke out. 
  • Construction materials: The quality of materials used also affects the cost. As a result, high-quality construction materials need more coverage and increase costs compared to low quality materials.
  • Project duration: Longer duration of projects is more exposed to losses than shorter duration projects. Hence, premium depends on the length of the project.

Frequently Asked Questions (FAQs)

What's the difference: builders risk vs commercial property insurance?

Commercial property insurance helps cover an existing structure and its contents. On the other hand, builders risk insurance covers risks during construction and renovations. It is a type of property insurance.

Do I need to purchase builders risk insurance?

If you have a financial interest in the construction project, it is a wise choice to get builders risk insurance. Typically, stakeholders like property or building owner and contractors purchase this policy.

What is an installation floater?

Sometimes an installation may create damage to the structure. As a precaution, an installation floater is purchased by subcontractors to cover the risk of installation hazard.

Get in touch with us today to get the best builders risk insurance quotes!