Builder’s risk insurance, also known as course of construction insurance, is a specialized type of property insurance that helps protect buildings, materials and equipment during construction. Policies are typically purchased by property owners, general contractors or developers and remain in effect until the project is completed or occupied.
Builder’s risk insurance helps protect construction projects from property damage due to:
- Fire
- Lightning
- Hail
- Explosions
- Theft
- Vandalism
- Acts of God, like hurricanes
Who Needs Builder’s Risk Coverage?
Any person or company with a financial interest in the construction project needs builder’s risk insurance. People you may want to include on a policy as insureds include:
- Property owners
- General contractors
- Subcontractors
- Lenders
- Architects
- Developers and project sponsors
- Construction managers
What Does Builder’s Risk Insurance Cover?
A builder’s risk insurance policy helps protect 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. These can include:
- Lost sales
- Rental income
- Additional interest on loans
- Real estate taxes
What Types of Property Does Builder’s Risk Insurance Cover?
A basic builder’s risk insurance policy helps cover buildings and structures under construction. It also helps protect:
- Construction materials and supplies
- Labor costs and profits
- Temporary structures
- Debris removal
- Property of others
- Testing coverage
Because every construction project is unique, each builder’s risk policy is different. Companies can customize a policy to fit a project’s needs by getting coverage extensions to include protection for:
- Scaffolding
- Construction forms
- Temporary structures
- Debris removal and disposal in the event of a loss
- Pollutant cleanup
Builder’s Risk Insurance Exclusions
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 companies may be able to get extensions to help protect projects that are vulnerable to these kinds of risks.
Other builder’s risk insurance coverage exclusions include:
- Wear and tear
- Acts of terrorism and war
- Employee theft
- Rust and corrosion
- Mechanical breakdowns
- Damage due to faulty design
- Planning
- Workmanship and materials
- Engineers
How Much Does Builder’s Risk Insurance Cost?
Every builder’s risk insurance policy is different, and costs vary depending on project scope, materials, location and policy term. One policy may need more coverage or extensions to help protect a construction project. Generally, builder’s risk insurance costs depend on several factors, such as:
- Construction materials
- Type of project
- Policy details, like coverage amounts and limits
A good rule of thumb is to choose coverage limits that are equal to the anticipated cost of construction. So, if a construction project has a high cost, it could result in a higher insurance rate.
The best way to find out a builder’s risk insurance cost is to contact an agent or broker and get a quote.
Find the Right Builder’s Risk Policy
Follow these guidelines to help get the right builder’s risk insurance policy:
Find an Experienced Agent or Broker
It’s important to work closely with agents or brokers and insurers that have experience with builder’s risk. Every project has different risks, so it’s important to create a policy that addresses your unique needs. An agent or broker can help you choose the right amount of coverage and obtain quotes.
Consider All of Your Exposures Before Purchasing Coverage
Do an inventory of all project exposures at different phases of the project, including those at the construction site, in transit or at a temporary storage site. Contractors may choose to get broad protection for property of all kinds at all locations or narrow coverage to specific property and risks. Make sure to review the policy so there aren’t any coverage gaps.
Know When Coverage Begins
A builder’s risk insurance policy usually starts on the date when all the contracts get signed, but certain policy provisions may restrict when coverage begins for a project. So, be sure to understand what specifically triggers the start of coverage.
Know When Coverage Ends
Since it’s a temporary insurance policy, builder’s risk coverage will likely end after a project’s completion. The policy will indicate the specific conditions for coverage timing. It can end after:
- A policy expires or is cancelled
- A building becomes occupied
- A building is put to its intended use
Understand the Extent of Coverage for Defective Work Problems
Generally, builder’s risk policies exclude the costs of repairing or correcting faulty work from 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 a policy includes these types of provisions, be sure to understand the extent of coverage.
Read Your Policy
Before signing a contract, read through the entire policy. Be sure to double-check all coverages, conditions for coverage and exclusions. Understand what is and isn’t covered with a builder’s risk insurance policy. If a coverage gap comes up, work with an agent or broker to address it.
Selecting a Builder’s Risk Insurance Carrier
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 with underwriters who specialize in builder’s risk and can custom design a policy.
Learn how our Risk Engineering team can help support your next construction project with tailored builder’s risk insurance.
