As the name may imply, 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. Any person or organization with a financial stake in a construction project needs builder’s risk insurance, including contractors, property owners, investment companies, architects, and more.
When Is Builder’s Risk Purchased?
Considering the transient nature of construction, demand for builder’s risk policy is time-sensitive. People do not want to pay for insurance before it is needed, so purchases often occur on the date of construction when the contract is finalized. Brokers will need to act promptly in order to secure coverage in time. Some clients begin construction without securing builder’s risk coverage. In cases like these, projects are eligible, but underwriters factor the percentage of construction completed into the underwriting process.
What Does Builder’s Risk Insurance Cover?
In addition to property damage, builder’s risk policies can help cover additional costs or expenses not directly related to construction. For instance, if property damage causes a delay, the lost sales or additional interest on loans incurred during this time can be covered.
As mentioned earlier, each builder’s risk policy is different (because each construction project is). Brokers will work with insurers to create a custom policy that addresses the specific needs of their clients, factoring in the buyer and type of project (new construction vs remodeling vs installation). Coverage extensions, such as protection for scaffolding or pollutant cleanup, can also be added to policies. Costs vary depending on the level of coverage.
What Doesn’t Builder’s Risk Cover?
Like most other types of coverage, builder’s risk does not cover everything. Some coverage exclusions include damage due to faulty design, employee theft, rust and corrosion, and more. Zones prone to natural disasters, such as earthquakes or flood, may be excluded from coverage but extensions can be added to help protect projects vulnerable to these kinds of risks.
What if A Contractor Already Carries Insurance?
Reputable contractors should be carrying liability and worker’s compensation insurance for their employees. And this level of coverage may be adequate for homeowners looking to complete an average-level project. However, if the project has a large budget, something like building a high-value home or large commercial real estate project, builder’s risk is necessary.
The best way to find out whether or not builder’s risk is right for your clients — and, if it is, what coverage is appropriate — is to contact an insurance expert.