The bottom line for most insurance packages is cost: how much will it cost your customer in dollars, and how much will it cost you in patience to explain the size of their premiums? We joke, of course. But seriously, clients don’t want to pay for something they won’t need, and a Builder’s Risk insurance policy is no different.
Builder’s Risk (also called Course of Construction insurance) is a type of property insurance designed to provide coverage to an under-construction residential or commercial property. The coverage typically insures on-site buildings and temporary structures against vandalism, theft, and damage to the building or building materials. Even though BR insurance is necessary for any major construction project, project owners will still have questions about the amount of coverage they need and how much it will likely cost them.
The fact is, every situation and policy is unique so putting a universal price on BR is near impossible. However, that doesn’t mean you can’t give your prospective clients an idea of what they’re likely to pay and the reasons why. This guide will help you explain the costs of BR insurance, who pays for builders risk insurance, and which optional coverages are available, so your clients will feel confident that they’re getting the best deal possible.
How Much Does Builder’s Risk Insurance Cost?
A good figure to start with is 1-5% of the total cost of the renovation, new construction, or betterment project. However, the devil is in the details, and most clients will want more than just a ballpark (especially if they’re building something as big as one).
The cost of BR insurance is generally dependent on the cost of the project calculated by assessing the actual cash value (ACV) or the replacement cost (RC). When calculating the cost, ACV factors in wear and tear, while RC is how much it’d cost to replace everything brand new. Either ACV or RC can be used for construction projects, but RC often isn’t available for renovations.
Beyond the cost of the project, insurance companies determine the price of BR insurance by looking at:
- Project location: Locations in areas with higher crime, near the ocean, or at higher risk for natural disasters will cost more to insure.
- Construction materials: Rare or more easily damaged materials (such as wood) will cost more to insure.
- Supplemental coverages: Added coverages not included in a basic insurance package will add to premium costs.
Let’s look at how these factors impact BR insurance costs in two simplified examples.
- Example #1: Homeowner Harry has decided to add a second floor to his home.
- The cost of this addition is pegged at $500,000.
- His home is located in a safe neighborhood and has no environmental risk factors.
- Harry’s project is fairly simple, so he doesn’t opt for any extra coverages.
Result: Harry’s insurance broker runs the numbers and offers him a BR insurance quote for around $5000 a year.
- Example #2: Developer Darby has plans to create a 20-unit condo development with some shared amenities.
- The cost of the project is $3,000,000.
- The development is in an earthquake-prone region.
- Darby decides to include sewer backup supplemental coverage.
Result: Darby’s insurance broker runs the numbers and offers her a BR insurance quote for around $30,000 a year.
Who Pays For Builders Risk Insurance and Who Should Be Insured?
Purchasers of Builder’s Risk insurance coverage need to think about more than just the cost of the policy. They also need to consider who among the owners, lenders, and contractors will need to pay for the policy and who needs to be covered.
The people with the largest financial interest in this property should be the ones to shoulder the costs of the BR insurance. In most cases, this person will be the homeowner or general contractor.
When buying BR insurance, the purchaser also needs to make sure that all relevant parties are named insureds. You should name anyone financially invested in the construction or renovation in the BR policy.
- The owners of the property
- Any contractors or subcontractors that are working on the project
- Financiers of the construction
So how does this work out for Homeowner Harry and Developer Darby?
- Homeowner Harry will purchase the policy for himself. He names himself, his general contractor and subcontractors, the bank he received the loan from, and his architect on the policy.
- Developer Darby discusses the BR insurance policy with her general contractor and decides that she’ll purchase the policy herself. She names her general contractor, subcontractors, architect, and her financial backers as the insureds.
What Additional Coverages Are Available?
Insurance agents and brokers can extend the coverage of a Builder’s Risk insurance policy by opting in for additional coverages that suit your client’s unique needs. These can include extending coverage to buildings in zones prone to disasters like fire or covering greenery installed as part of the build.
Some additional coverage options commonly offered are:
- Sewer backup: Covers property damages caused by sewer water backing up into the construction site.
- Expediting expenses: Covers costs associated with getting the project back on track after a loss. This includes things like overtime costs for employees and expedited shipping for crucial replacement parts.
- Soft costs: Covers expenses related to construction that have been incurred because of a direct physical loss. For example, this could cover additional realty taxes and assessments that occurred because of an extended project completion date.
- Limited fungus: Covers damages caused by fungus on the job site.
- Greenery: Covers damages to trees, shrubs, or gardens installed as part of the construction project.
Choosing which additional coverages are right for your client will come down to the kind of project they’re doing and your client’s risk tolerance.
For instance, Homeowner Harry probably has no use for greenery coverage. However, he could be interested in limited fungus since he’ll need new piping for his second floor, and a small unnoticed leak could lead to fungal damage.
On the other hand, Developer Darby might be more interested in expediting expenses and soft costs. The cost of adding these additional coverages may add to her monthly premiums, but they’ll also help her stay on schedule and budget even if the unexpected happens.
Apply Online or Speak with an Insurance Expert
We could outline a hundred examples here, and it still wouldn’t cover all the situations your clients bring to you. If you still have unanswered questions, talk with one of our insurance experts. Or, if you want to see what a BR policy from Distinguished might cost, use our fully automated online Broker Portal to get a quote for your client in 24-48 hours.
Distinguished Builder’s Risk Pricing FAQs
Don’t see the answers you’re looking for up above? Here are some commonly asked questions about our Builder’s Risk insurance package.
What is the max TIV for your BR?
Max TIV depends on the project.
- New Construction: Up to $10M (Frame construction up to $5M TIV)
- Remodeler’s Risks: Up to $5M
- Betterments Only: Up to $5M
With coastal projects, these limits are:
- New Construction: Up to $20M (Frame brand new construction up to $6.5M TIV)
- Remodeler’s Risks: Up to $20M (Frame remodeler’s risks up to $5M TIV)
- Betterments Only: Up to $20M
What policy lengths do you offer for BR?
Distinguished offers policy terms of 3, 6, 9, 12 months, or longer.
Are there any types of buildings Distinguished can’t insure?
Distinguished will insure most building types, including both commercial and residential properties. However, we won’t be able to insure properties listed on the National Register of Historic Properties or projects that require underpinnings (vertical and horizontal additions can be considered).
As far as construction class limitations, they’re all fair game as long as the scope of work meets our program guidelines.
Can I cover more than one property on a Builder’s Risk Policy?
We typically write one location policies. However, we’d consider multiple buildings for one location on a case-by-case basis. The key requirement is that the construction for all buildings starts and stops at the same time.
About Distinguished Programs
Distinguished Programs is a leading national insurance Program Manager providing specialized insurance programs to brokers and agents with specific expertise in Real Estate, Community Associations, Hotels, and Restaurants. Property and liability products are distributed through a national network of agents and brokers. Serving the same core markets and partnering with the most stable and reputable carriers, Distinguished Programs’ high-limit umbrella programs remain the clear choice in its areas of specialty for superior coverage, competitive pricing, and attentive service. Through thoughtful innovation, stemming back to 1995, Distinguished Programs fosters growth and opportunities for its brokers, carriers, and employees.