Builder’s Risk Coverage
Builder’s risk coverage is a specialized type of property insurance that protects buildings under the course of construction. Construction projects can be either residential or commercial and policies are available for new construction or remodel and renovation.
FAQs
Coverage
Builder’s risk insurance helps protect your construction project from certain types of property damage. Common covered causes of loss include: fire, theft, explosion, lightning, wind and vandalism. It may also cover elements of the construction project such as: materials, supplies and equipment on site, in transit or at temporary storage locations. Most policies include the option to purchase coverage for expenses related to a construction project if the project is delayed, called soft costs. Some examples of soft costs are: loss of rental income, additional interest charges, additional cost of labor and materials and fees (like those from architects and engineers or from licenses and permits.) Other coverages you may want to consider are temporary structures (such as scaffolding and signage), debris removal, documents/data (such as blueprints) and pollutant cleanup.
Covered Parties
Any individual or business that has a financial interest in the construction project requires builder’s risk insurance. Common entities that are covered as insured’s on a policy include: the property owner, the general contractor, subcontractors and lenders. Typically only one of these parties will purchase the builder’s risk policy but the policy will list each entity that has an interest as an insured.
Timing
Often, proof of builder’s risk coverage is required prior to a building permit being granted. It is important to purchase a builder’s risk policy prior to any work being started on the project. A good rule of thumb is that insurance should be in place before any materials are placed at the jobsite. Builder’s risk coverage is temporary and ceases when the project is complete and a certificate of occupancy has been issued.
Exclusions
Like any other type of insurance, builder’s risk coverage includes exclusions and each policy if different. Some common exclusions include:
- Wear and tear
- Employee theft
- Mechanical breakdown
- Manufacturing defects
- Damage resulting from faulty design
Cost
The cost of a builder’s risk policy varies depending on the type of coverage and the project needs. Factors such as the type of project, cost of the project, location of the project, coverage limits, project timeline, jobsite protocols (such as fencing and lighting) and the type of materials being used in the project determine the cost of coverage. For example, a project expected to take more than one year or a project in a remote location may increase costs. It is important to select coverage limits that are equal to the anticipated cost of construction.