Construction projects are full of risk, and there are several different insurance products available to cover these exposures. Among the most common policies are builder’s risk insurance and general liability. Many people wonder if they can cut costs by only purchasing one. Is the coverage redundant? Do you really need both?
While there is some overlap between the two types of policies, both are often necessary in order to have all potential exposures covered. The two are not interchangeable; they each perform a specific job.
As previously mentioned in a blog, builder’s risk insurance is a specialized type of property insurance that protects buildings under construction. Unlike homeowners’ insurance, which covers structures that have already been built, builder’s risk is made for new constructions, renovations, or additions. A property in the midst of construction has different risks than an established structure, and builder’s risk is essential for managing these unique risks.
Builder’s risk insurance covers a variety of situations, such as fire, wind, lightning, vandalism, explosions, and theft. Basic builder’s risk insurance policies help to protect both the building under construction, and the materials, fixtures, and equipment to be used in construction. Builder’s risk insurance, however, does not typically cover employee theft, bodily damage — only external events.
Contractors General Liability
Contractors general liability, on the other hand, covers third party property damage, advertising injury, and bodily injury – incidents that can happen during normal business operations, caused by a contractor and their employees. It does not cover employee injury or damage to a contractor’s tools or property. Contractors are also legally required to carry this coverage in many states.
What’s the Difference?
One of the main differences between the two coverages are who buys the insurance. Generally, the person or company who purchases builder’s risk insurance is the one in charge of the project and responsible for the structure until it is sold, whereas general liability insurance is purchased by individual contractors. Your insured might be a contractor in charge of a structure and would need both coverages. Anyone else working on the job, such as a plumber or painter, would need only general liability.
Another way the two coverages differ is the policy term. Builder’s risk is only purchased for as long as the building is under construction, but general liability insurance must be held by contractors year round (or as long as they are operating a construction business).
Ultimately the key distinction between builder’s risk and general liability is that one protects the jobsite itself from damage and the other protects individual contractors. If you are an insured wondering which coverages you need, refer to your insurance agent. And, if you are an insurance agent, make sure your clients get the best deals and right coverage with Distinguished.