Builders Risk Insurance: Purpose, Coverage, Cost, Benefits, & More!

Before starting your dream project, the smartest move is to buy the right kind of builders risk insurance! This insurance is the ultimate risk management strategy to deal with major risk factors during the construction process and thus be able to complete a development work successfully. 

Many people miss this essential policy purchase at the beginning of the construction, and it leads to a huge financial burden in the event of mishaps or uncontrollable accidents. With this course of construction insurance, dealing with the exposure becomes a lot easier and less stressful. 

What is Builders Risk Insurance?

The builders risk insurance is a form of property insurance, discussed in the context of risk management during construction.

This insurance protects against unforeseen events that can lead to substantial damage to a construction project, such as a private house, multi-storey buildings, shopping complexes, etc. Partial and complete, both damage types, are included.   

It is also called the course of construction insurance, because it protects the property or project during the development phase, and not once it is complete. So, that is a brief explanation of what is builders risk insurance.   

Also Read: General Conditions of Contract: Complete Guide with Meaning, Types & Examples

What are Builders Risk Insurance Coverage Areas?

The builders risk insurance coverage isn’t just limited to, but certainly includes the damage out of fire, theft, vandalism, weather, vehicle collisions & explosions, loss of or damage to materials, supplies, etc.

• Fire: If the project is damaged due to the spread of unintentional fire or fire emergencies from the surroundings.

• Theft: Loss of materials, fixtures, and equipment often caused by third parties, not the engaged parties. 

• Vandalism: Any type of action that causes the destruction of the property being built or under construction.

• Weather: Damage from wind, hail, storms, and other such uncontrollable events when there was no prior information of the same. This is a major factor that is included in builders risk insurance coverage.  

• Vehicle Collisions & Explosions: Often only those events are considered where circumstances are uncontrollable and not intentional. 

• Construction Materials: The cost of the lost or damaged materials is also covered under the policy. Such materials can be in transit or stored somewhere else at the time of such mishappening.  

• Other Coverages: Arson, soft costs, debris removal, lawsuits, etc.

The scope of coverage varies a lot from one provider to another. It also depends a lot on the policy type we are considering. For instance, builders risk insurance for homeowners and liability insurance for contractors are both different and thus have exclusive coverage areas. Additionally, any of the event that causes the damage mustn’t be planned or premeditated, in other words, self-caused just for the sake of getting the insurance money. 

What are the Aspects that Builders Risk Insurance Doesn’t Cover?

Factors such as Faulty workmanship, employee theft, wear & tear, acts of war and terrorism, nuclear accidents, deliberate delays, etc., aren’t usually considered under the builders risk policy, and thus, the financial support to recover the damage arising due to them isn’t provided by the insurance carrier. 

• Faulty Workmanship: All risks and damages arising out of the fault of the insured. 

• Employee Theft: Any instances of theft related to the materials, equipment, and construction vehicles committed by the insured parties.  This one is not considered in the builders risk coverage under any circumstances.  

• Wear and Tear: Damage arising from the normal deterioration, often due to the use of substandard material or avoidable conditions.  

• Acts of War and Terrorism: Such events are typically not covered due to the vast scale of the damage. 

• Nuclear Accidents: The logic is the same as in the case of war and terrorism.  

• Deliberate Delays: If it is proved that the delay was initiated by the insured person, the damage arising out of the affected period in the construction won’t be covered by the insurance company. 

• Other Aspects Included in the Builders Risk Policy: Damage caused by water intrusion, bodily injuries, contractor’s errors, or any damage after the completion of the project. 

If you aren’t happy with these exclusions, consider ensuring additional endorsements or specialized policies in addition to the builders’ risk insurance. You can even talk to the provider to extend the scope of the coverage if possible, with a higher premium amount.  

Also Read: What is a Submittal in Construction? Learn How Submittals Work and Why You Need to Focus on Them 

Who Needs Builders Risk Insurance?

Anyone who has a stake in a construction project, including project owners, contractors, subcontractors, architects, engineers, and others, needs construction insurance to minimize the risk factor. It helps make up for the damage to an under-construction property (or project) due to unforeseen, uncontrollable factors. 

• Project owners: People who own the property or piece of land that is either under construction or being renovated. 

• Architects: The professionals who design the project before the actual development. 

• Engineers: Experts who translate the architectural designs into real structures.    

• Contractors: These are builders who take the responsibility of completing the construction projects for monetary considerations, often arranging for all the required resources and supervising the process till finalization. Each new project owner must know who a contractor is and what they do before investing any money. A contractor is often the main party in the builders risk policy. 

• Subcontractors: All the experts who only deal with specific parts of the construction process, such as electricians, plumbing experts, HVAC dealers, etc.   

The course of construction insurance is often purchased by either a project owner or the general contractor, as per the prevailing terms and conditions. Other parties, such as architects, subcontractors, engineers, etc., can be included in the contract as additional insureds and thus be entitled to the builders risk coverage.   

Also Read: Construction Bidding: Learn Meaning, Stages, Elements, Types, and More!

What is the Average Cost of Builders Risk Insurance with Key Influential Factors?

Major factors that influence the risk insurance prices are site location, project nature, construction type, extra coverage (upgrades), and additional fees and taxes, as explained below. 

The builders risk insurance quote differs from provider to provider, being a highly variable factor. Yet, the average price typically ranges from 1% to 5% of the total expected cost of completing a particular project. The expected cost of an overall build or remodeling is calculated by a general contractor during construction estimating. 

Site Location

A build or renovation happening in a prime location often increases the insurance cost, compared to less populated or underdeveloped places. For example, building a property in a posh locality means a higher total cost to complete the project and thus a resultant increase in the insurance premium.  

Project Nature

Different types of projects also affect the cost variably. For example, a mere installation project doesn’t cost as much as a new development. Additionally, remodeling projects are highly expensive due to a major risk factor. For example, while remodeling, structural changes to the pre-existing build might require, increasing the chances of damage to the adjacent parts that are not to be remodeled. 

Construction Type

The nature of supplies and materials chosen, as per different construction types, to build a project, is also an influential factor. For instance, picking wood over steel for the basic structuring will increase the insurance premium, due to the higher risk of damage in fire emergencies.  

Upgrades (Optional Coverages)

Some insurance policies might not cover certain events, such as earthquake, flood, etc. In those cases, you will either have to buy other sub policies for extra coverage or extend the scope of the existing one. Such upgrades indeed provide more comprehensive protection but come with additional charges.

Additional Fees and Taxes

Non-admitted insurance companies, which aren’t licensed under the state’s insurance department, often offer a wide coverage, but at the expense of additional charges as opposed to licensed companies, also called admitted insurance providers. Thus, choosing a non-admitted carrier will increase the policy premium.  

So, these are the variables that influence the builders risk insurance quote or prices. Learning about these will have enabled you to cut all the manageable aspects of the expected project expenses and thus the insurance cost.   

Also Read: 19 Steps to Building a House – Construct Your Dream Living Space With Precision   

What are the Benefits of Builders Risk Insurance?

Major benefits of builders risk insurance are related to aspects such as protection, customization, financial security, delay management, course of construction, additional insured, and materials in transit. 

For explanation, refer to each point as explained below.   

1. Protection: The major benefit of the risk insurance in construction is the protection against the unexpected and unforeseen. There might be several events that can lead to substantial damage. Thus, risk insurance helps make such situations less severe.

2. Customization: The coverage limit can be decided by the client who buys the project, as per the project estimation. It makes the insurance claim more suitable and appropriate.  

3. Financial Security: Every loss incurred and damage suffered is covered by the carrier in monetary value, so that it becomes easy to compensate for things that have veered off the anticipated trajectory due to catastrophic accidents. 

4. Delay Management: When there is a loss anyhow, builders risk insurance provides for a quick recovery mechanism, and thus there are no substantial delays or downtime before the project starts again after the interrupting accident. 

5. Course of Construction: The construction insurance offers financial protection against unforeseen events from the start of the project till the time it ends.  

6. Additional Insured: All the major stakeholders can be included in the insurance policy as additional insured so that they have direct, uninterrupted access to the coverage without a long delay. 

7. Materials in Transit: The best part is that this insurance also secures materials either stored off-site or even in transit. Thus, loss or damage due to theft and on-road accidents are immediately recovered with the financial coverage. 

Hence, the risk insurance is an effective tool that helps builders build each project in peace without wasting too much energy on potential harm that might occur during the construction process. 

Also Read: How Much Does a Home Inspection Cost? Know All The Factors Behind It

How to Choose the Right Policy Among Different Types of Builders Risk Insurance?

Selecting the most suitable construction insurance policy requires paying attention to aspects, such as hiring an experienced agent, learning about policy types, doing a proper exposure analysis, knowing about the coverage period, choosing the right coverage extent, and studying the terms thoroughly before signing a contract. 

• Experienced Agent: If possible, hire and take the help of an experienced agent to easily navigate through the complex task of selecting the right policy. 

• Policy Types: Learn about all the major risk policies in advance with a complete comparative analysis of advantages, disadvantages, and special features to see which one you should purchase. For example, builders risk insurance for homeowners will definitely differ from the liability insurance for contractors in terms of coverage. 

• Exposure Analysis: Make a comprehensive list of all the potential harm that might occur during the project development. It helps in picking the policy that best meets your coverage requirements. 

• Coverage Period: Never forget to carefully look at the specifics of when the policy starts and when it ends. 

• Recovery Extent: Learn about the extent of the recovery in advance. Buying a policy that doesn’t cover a major exposure will make the resultant damage completely irreversible. 

• Thorough Study: Doing a thorough study of the contract before signing any page in particular is a must, too. Contracts might skip important details that you should check! 

Finally, never miss out on hidden charges. If your insurance provider has increased the premium amount in the contract, adding additional charges that weren’t discussed before, ask for an explanation. Or, step out of your side of the promise.  

Conclusion 

The builders risk insurance is a useful tool to manage major risk factors or exposures during the construction of a project. This policy is available for installation, new construction, and remodeling projects, thus catering to the needs of a wide range of general and subcontractors. Always analyze your odds thoroughly in advance to pick the most suitable insurance term out of the available options.   

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