Developers, builders and contractors take on big risks every day. Necessary risks come with the territory when you are creating real structures from ideas and plans. But, why take on unnecessary risks? Smart developers, builders and contractors insure their buildings under construction with appropriate builders risk insurance.
Builder's risk insurance is "coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause."
What Is Builders Risk Insurance?
Builders risk insurance, also called "course of construction," insurance is a type of property coverage for buildings under construction, as well as all of the materials and equipment used in the project. You will typically need to purchase coverage for 100 percent of the anticipated construction costs.
The term "builder" is misleading because insureds can include not only the contractor(s) performing the work, but the ultimate owner, lending institution and others.
What Builders Risk Insurance Covers
- Property damage: Includes construction material, heavy machinery and equipment, temporary structures, cribbing, false work, fencing, scaffolding, construction signs and landscaping
- Theft: Some builders risk insurance policies will cover theft of building materials; to get this coverage, you may need to have a gated job site
- Labor costs and earned profits: Replaces labor costs, income and expenses
- Perils of nature and man-made disasters: Hurricanes, fires, blizzards, severe hail storms, lightning, black outs, broken water mains
- Other damages: Negligent workmanship, flawed materials or design
What Is Excluded from a Builders Risk Insurance Policy?
Note that these policies do not cover accidents and injuries at the workplace or liability risks. They will also exclude certain acts of nature, such as earthquakes and floods.
How Long Does the Insurance Last? How Much Does it Cost?
Normally the insurance lasts three, six or twelve months, and you can usually extend the term at least once if the building is not completed. The coverage ends when the building is completed or occupied.
A builders risk policy will typically cost one to three percent of the total construction budget, depending on the coverage and insurance company.
When does coverage begin?
Once a Builders Risk insurance policy is issued, coverage begins when you become legally responsible for the covered property on or after the effective date of the policy. As soon as materials are delivered to the job site, your builders risk policy starts protecting you. You should obtain a Builders Risk policy prior to beginning construction to ensure that your project is properly covered.
A Builders Risk policy covers your financial interests during the course of a construction project. The policy covers property such as building materials from the time they are delivered to the site until the structure is sold or other insurance coverage, such as a homeowner's policy, is in place. Builders Risk policies also provide coverage for theft of building materials, materials in transit or at temporary locations, certain landscaping and much more.
Builder's risk insurance can be defined as coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.