Builder's Risk
Builder’s risk insurance, also known as course of construction insurance, is a specialized type of property insurance that helps protect buildings under construction. It’s essential in helping to protect construction projects, but can be complex and often misunderstood. However, having a properly structured builder’s risk insurance policy can be crucial. In fact, it will serve as the backbone of a successful risk management program.
Who Needs Builder's Risk Coverage?
Any person or company with a financial interest in a construction project needs builder’s risk insurance. Some common people you may want to include on your policy as insureds include the:
- Property owner – most common purchaser of builder’s risk
- General contractor
- Subcontractors
- Lenders
- Architects
Did You Know?
Before starting your project, determine who will be providing the builder’s risk policy. Should your builder provide you with a certificate of insurance, the certificate should not be mistaken as a substitute for a builder’s risk coverage.
A builder’s risk insurance policy usually starts on the date when all the contracts are signed and before you break ground, but certain policy provisions may restrict when coverage begins for your project. So, make sure you understand what specifically triggers the start of coverage.
A builder’s risk insurance policy helps protect your construction projects from certain kinds of property damage. It can also help cover additional soft costs, or expenses not directly related to construction, if property damage causes a delay.
Be aware that many builder’s risk insurance policies provide “property only” coverage. This means they are only covering the structure and it DOES NOT provide liability coverage on the premises. Liability coverage needs to be purchased separately.
Be aware that builder’s risk insurance may have coverage exclusions. For example, earthquake, flood, wind or beach zones are usually excluded from coverage, but you may be able to get extensions to help protect projects vulnerable to these kinds of risks.
Every builder’s risk insurance policy is different, so costs vary depending on what you need. Your policy may need more coverage or you may need to add extensions to help protect your construction project. Generally, your builder’s risk insurance costs depend on the:
- Construction materials
- Type of project
- Policy details, like coverage amounts and limits
- Water and Fire resources
A good rule of thumb is to choose coverage limits that are equal to the anticipated completed cost of construction.
Since a builder’s risk policy is a temporary insurance policy during construction, your builder’s risk coverage will likely end after your project’s completion. Your policy will tell you the specific conditions for when coverage should end. It can end after the:
- Building is ready for C.O.
- Building put to its intended use
- Policy expires or is cancelled
Prior to completion of your project, call our office to discuss replacement coverage solutions to insure you will have a seamless transition of coverage.
Most insurers write builder’s risk insurance policies on an inland marine form rather than a standard property insurance form. This allows for broader coverage that’s tailored to the needs of each construction project. That’s why it’s important to pick an experienced marine insurance carrier. You’ll reap the benefits of working with one of our agents who specializes in builder’s risk and can design a policy to fit your needs.
Property's Protected By Builders Insurance
- A basic builder’s risk insurance policy helps cover buildings and structures under construction. It also helps protect:
- Materials
- Supplies
- Equipment on site, in transit, or at another location
Renovations
Question – Do I need a builder’s risk policy if I am renovating or building my home? That depends on the extent of your renovations. Both the cost, length of time and occupancy will determine if you need to modify your existing policy or purchase / add an endorsement for builder risk coverage.
Most insurance underwriters ask five simple questions:
- Will the renovation cost be less than 10% of the dwelling limit as stated on the existing policy?
- Will the renovation period take less than 3 months to complete?
- Will the home be occupied during the renovation?
- Will the renovation be contained to the existing footprint of the building?
- Are all load bearing walls remaining in tack?
IF YOU ANSWERED NO TO ANY
It is important that you contact us prior to starting your renovation project. We will review the scope of your project and address your coverage needs to insured coverage is properly afforded to you. Even if you answer no to all of the above, we recommend that you give us a call to review your coverage.
In many situations, renovation coverage can be addressed through modifying an existing policy by means of a renovation endorsement. It is important to call our team prior to the start of the project. We will assist you and recommend the best method of covering your project needs.
As a general rule, builder’s risk policies exclude the costs of repairing or correcting faulty work by a subcontractor. However, policies with an ensuing loss provision may cover the resulting damage to other property caused by the faulty work.
Exclusionary provisions can vary widely. If your policy includes these types of provisions, make sure you understand the extent of coverage.
Before you sign a contract, read through your entire policy. Be sure to double check all coverage, conditions for coverage and exclusions. You’ll want to make sure you know what is and isn’t covered by your builder’s risk insurance policy. If you find a coverage gap, work with your agent or broker to address it.
