Builders Risk Insurance

Insurance for the Construction World

Builder's risk insurance, also known as course of construction insurance, covers buildings under construction against damage or loss due to events like fire, theft, vandalism, and natural disasters.

Here's why it's important, coverage details, how to choose the right policy, and best practices for managing risk.

1. Understanding Builder's Risk Insurance

Definition and Importance: Builder's risk insurance is a specialized type of property insurance designed for buildings under construction. It's essential for managing the risk of loss or damage to the construction project, materials, and equipment. This insurance is critical for protecting the financial investment of all parties involved in the construction project, including the owner, contractor, and financiers.

What It Covers: Generally, builder's risk insurance covers loss or damage to the construction project due to a wide range of perils including:

  • Fire, explosion
  • Theft, vandalism
  • Weather-related damages (e.g., wind, hail)
  • Some policies may also cover losses due to delays, such as lost sales, rental income, or additional loan interest.

It’s important to note that most builder’s risk policies do not include liability coverage, so contractors should look to general liability policies for said protection.

2. Policy Details

Coverage Limits and Deductibles: The coverage limit of a builder's risk insurance policy should reflect the total completed value of the project, including materials, labor, and overhead costs. Deductibles vary by policy and are typically a percentage of the coverage amount or a fixed dollar amount.

Duration and Extensions: Builder's risk policies are usually issued for short terms, such as three, six, or 12 months. They can be extended if the construction project takes longer than expected, but it's important to arrange for extensions ahead of time.

Exclusions: Common exclusions might include employee theft, mechanical breakdown, and normal wear and tear. Earthquake and flood coverage may also be excluded but can often be added as endorsements.

3. Choosing the Right Policy

Assessing Your Needs: Evaluate the specific risks associated with your construction project. Consider the project's location, the type of construction, and the materials used. This assessment will help determine the coverage limits and additional endorsements you may need.

Comparing Providers: Work closely with an agent or broker and insurer that has experience with builder’s risk. Every project has different risks, so you’ll need a policy that addresses your unique needs. Your agent or broker can help you choose the right amount of coverage and get you quotes.

Understanding the Cost: The cost of builder's risk insurance varies depending on the project size, location, type of construction, and the coverage chosen. Work with your insurance agent or broker to understand the factors that will affect your premium and how you can manage costs.

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