How Builder's Risk Insurance Can Benefit Your Business
Builder’s insurance risk, also called course of construction insurance, is a type of property insurance that covers buildings under construction from the beginning to the end of the project.
It protects against various risks that can cause damage to the construction project, including theft, vandalism, and certain types of natural disasters.
Here’s a detailed look at builder’s insurance:
Key risks covered by builder’s risk insurance
- Fire: Protects against damage caused by fire during the construction process.
- Theft: Covers the loss of materials, tools, and equipment stolen from the construction site.
- Vandalism: Protects against intentional damage to the construction project.
- Natural disasters: Covers damage from certain natural events like windstorms, hail, and lightning. However, earthquakes and floods may require separate coverage.
- Accidental damage: Protects against unintentional damage caused by human error or accidents on the construction site.
- Materials and equipment: Covers materials and equipment stored on-site, in transit, or at temporary storage locations.
- Soft costs: Covers indirect costs such as architectural fees, legal expenses, and interest on construction loans that may be incurred due to a delay caused by a covered peril.
Common exclusions
- Employee theft: Typically, theft by employees is not covered.
- Normal wear and tear: Damage due to normal aging and usage of materials and equipment is excluded.
- Defective workmanship: Defects or poor workmanship are generally not covered, although resulting damage might be.
- Governmental action: Losses due to actions by governmental authorities are usually not covered.
- Flood and earthquake: These natural disasters are often excluded and require separate policies.
Importance of builder’s risk insurance
- Financial protection: Provides crucial financial protection against unforeseen events that can cause significant financial loss during the construction phase.
- Lender requirement: Often required by lenders as a condition for financing construction projects.
- Peace of mind: Offers peace of mind to builders, contractors, and property owners by mitigating the financial risks associated with construction.
Considerations When Purchasing Builder’s Risk Insurance
- Policy duration: The policy should cover the entire construction period, from the start of construction to the project's completion or occupancy.
- Coverage limits: Ensure the coverage limits are adequate to cover the total value of the completed project, including materials and labor.
- Customization: Customize the policy to include specific coverages relevant to the particular project, such as coverage for scaffolding, temporary structures, or green building materials.
- Deductibles: Choose deductibles that balance affordability with adequate protection.
- Claims process: Understand the claims process, including how to document and report losses.
How is it different from wrap-up insurance?
Both wrap-up insurance and builder's risk insurance are crucial for risk management in construction projects.
Wrap-up insurance provides broad liability and workers' compensation coverage for all parties involved (owner, general contractor, and subcontractors) during construction project and may include completed operations coverage, while builder's risk insurance focuses on protecting the physical property under construction (physical damage of the property) until the project is completed.
Builder’s risk insurance is essential for anyone involved in construction projects, providing comprehensive coverage against a variety of risks that can cause delays, financial loss, and damage.
By carefully selecting a policy that meets the specific needs of the project and understanding the covered risks and exclusions, builders, contractors, and property owners can protect their investments and ensure the successful completion of their construction projects.
Our Western Business Insurance Experts can help you find the right policy for your needs. Learn more about home builder’s insurance.
