Builder’s Risk Insurance – Course of Construction Insurance

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What is Builders Risk Insurance?

1. Definition

Builder’s risk insurance and course of construction insurance are the exact same policy, simply with different titles. Builder’s risk insurance and course of construction insurance are a type of property policy that protects structures during construction and/or renovation projects.

2. What are the Risks in Construction Projects?

While a building is under construction, it is subject to many different risks; risks include (but are not limited to) fire, damage caused by high winds, theft, and vandalism.

3. Why is Builder’s Risk Insurance Necessary?

Builder’s risk insurance/course of construction insurance is typically requested by the owner of the building or the lender of a project/property being under construction. It is a policy that protects both the owner and the contractors working on the project in the event of an accident.

4. Who does it cover?

Builder’s risk insurance/course of construction policies typically cover all project participants including the contractors, subcontractor, project owners, and anyone who is financially involved in the project.

The rates below do not include wind insurance for buildings within 50 miles of the coast. If your property is within 50 miles of the coast, please submit and we will email you correct prices.

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How Much Does Builder’s Risk Insurance Cost?

The cost of a policy ranges from 1-4% of the total construction cost.
However, the premium depends greatly on the coverage requested and exclusions that the policy will have.

builder risk insurance averange cost

Therefore, it is important to find a stable insurance company as they expedite the process of filing claims and will help the insured in resolving these claims during the construction process.

Factors Affecting the Cost of Coverage:

New Construction

New Construction

The coverage needed for a new construction project may include coverage for site preparation, excavation, foundations, pipes, and temporary structures (such as scaffoldings).

Existing structures

Existing Structures

Many builder’s risk policies provide cash value coverage for the existing buildings; replacement cost coverage may increase your policy cost.

Building materials

Building Materials

Materials such as fixtures, tools, and equipment may be covered under a builder’s risk insurance policy. Materials used in a project may have a direct effect on your overall policy cost. For example, if the contractor uses high grade building materials and custom installations, your policy cost would most likely increase.

off-site property

Off-site Property

Additional coverage for builder’s risk insurance/course of construction insurance can protect materials that are still in transit, meaning they have not yet arrived at the project site, or materials that are stored offsite. This additional coverage is important in case an accident occurs offsite; for example, a fire breaks out in your storage facility or the truck transporting your materials crashes. This additional coverage will also have a factor in determining your overall policy cost.

Builder’s Risk Insurance Average Cost

The average cost of builder’s risk insurance/course of construction insurance varies greatly depending on the project.
Rates will vary depending on the type and size of your project, for example, whether the building is being constructed or remodeled, or whether the building is residential or commercial.

Project breakdown cost

Builder’s risk insurance for homeowners requires different coverage limits and, therefore, different rates than commercial policies. Additionally, builder’s risk insurance for homeowners may have certain coverage exclusions that are essential for home construction insurance but not in commercial construction insurance. For this reason, it is imperative to ask your insurance company to discuss the differences with you prior to signing any policy.

What Does Builder’s Risk Insurance Cover?

Builder’s risk insurance offers coverage for a wide variety of events. Standard coverage and exclusions are:

Common Events Coverage

  • Fire.
  • Theft.
  • Vandalism.
  • Vehicles/Aircraft.
  • Wind (wind coverage may be limited in coastal areas).

Common Builder’s Risk Exclusions

  • Design error or faulty workmanship.
  • Employee dishonesty or i’llegal acts.
  • Accidents and/or injuries in the workplace.
  • Earthquakes.
  • Floods.

Exclusion Example:

The general contractor must note that subcontractors are required to have their own insurance and that there is no coverage for tools and equipment.

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It is essential to confirm what your builders risk insurance policy covers, specifically its limitations and exclusions.

Who Needs Builder’s Risk Insurance?

Anyone considering a long or short-term construction project should investigate if builders risk insurance is necessary to complete their project.
This includes:

  • Residential property.
  • Commercial property.
  • A complete rebuild.
  • Gut rehab.
  • Renovation work.

Property insurance alone does not always provide coverage for construction-specific damages.

Insuring with a builders risk policy is the best way to maximize coverage and protect your property in the event of property damage, bodily injury, theft, or weather-related incidents.

Builder’s Risk for New Construction Vs Renovation

There are a lot of rating and coverage factors to consider when looking to insure a renovation versus a new construction project.

New contruction

New Contruction

For new construction, the builders risk policy covers the building from the groundbreaking period until the time that the building is completed.

Renovation

Renovation

On a renovation project, the policy will often only cover the restoration period. A builder’s risk policy can be designed to cover the cost of the renovations only, or the renovation exposure and the existing building together. If a builder’s risk policy is not specifically tailored, there may be a problem in coverage for either the building or the renovation portion. That is the reason why it is important to make sure that the correct coverage forms are included.

Builder’s risk insurance is essential to protecting your property during the construction process whether you are working on a commercial property, residential property, renovation work, or a rebuild in any capacity.

Type of Business and Why they Might Need Builders Risk Insurance

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Builders

  • For coverage of ground-up construction of a site
  • Reimbursement of stolen or damaged materials
  • Fire, wind, or water damage
  • Vandalism of site or equipment
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Contractors

  • Reimbursement of stolen or damaged materials
  • Reimbursement of stolen or damaged equipment
  • Fire, wind, or water damage
  • Vandalism of site or equipment
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Retail Companies

  • Protection of your construction site in strip-malls or other owned buildings
  • Protection of construction of the independent site
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School District

  • Coverage of additions built onto the school
  • Coverage of recreation structures
  • Coverage of tools
  • Coverage of equipment

Builder’s Risk for Homeowners

Builder’s risk insurance for homeowners typically supplements homeowners policies, as standard policies do not usually provide coverage for the construction of a home or renovation work.
Builder’s risk insurance for homeowners is the best option for residential property owners who anticipate demolishing and rebuilding their property, making renovations inside the home, or adding on to the existing house.

What is the Term Limit for Builders Risk Insurance Policies?

Unlike other types of property insurance, a builders risk policy is meant to offer coverage only during the construction process.
That means the policy ends or is terminated once the construction is completed and the property is ready for occupancy.

what is the term limit for builders risk insurance policies

The insured may choose between policies active for 3 months, 6 months, or one whole year.
Extensions may be requested under certain conditions depending on the policy.

Common Builder’s Risk Policy Extensions

Debris Removal

Most Builder’s Risk policies will cover repairs for the building in the event of a storm. But in construction, exposed structures mean big, moving parts.  If your site gets strewn with debris, you’re expected to haul it out of your own pocket. Industrial dumpster rental alone can cost $900. An extension will pay for the whole disposal.

Green Building

Similarly, if you do clear debris, perhaps you’d rather not dump it in a landfill. Green construction is a gigantic, growing global industry expected to hit $377 billion in 2022.  The US has the largest market. More and more clients want to work with sustainable contractors.

An extension for debris recycling, renewable energy repairs, and air purification from third-party damages can help establish your reputation in this important sector. It’s a coverage extension that is increasing requested for Builder’s Risk policies.

Pollutant Cleanup

Perils like fire, wind, rain and explosions can be seriously devastating on a construction site. Containers with paint, tar or other potentially toxic materials could get damaged, and seep into the soil or groundwater. Or, a fire could create hazardous fumes.

Pollution cleanup costs are immense, and contractors are more exposed than most. Standard Builder’s Risk policies won’t cover it. You can, however, add an extension that will pay for this. It’s especially useful if you work with lots of dangerous materials.

Delay of Completion

You just can’t control everything in construction. The risks are high and there are so many unexpected variables. Supply chain issues, weather events and equipment loss can all lead you to overshoot your deadlines.  If the completed building would have brought 25% in revenue for your company’s next quarter, that’s 25% lost.

A common extension for Builder’s Risk policies will protect you against this. ‘Delay of Completion’ coverage means your insurance provider estimates what you’re going without, and covers it to see you through.

Water Build-Up Damage

Florida has 583,600 construction workers the third most in the whole USA. It also has 1.5 million people living on a FEMA floodplain and the highest summer rainfall. All this to say: water poses a serious risk to construction sites. And not just in Florida.  2019’s national rainfall was 30% above average and has risen 90% since 1950. What if you’re renovating a building and water builds up in clogged pipes on the 30th floor. If it leaks out over a weekend, seeping down to lower floors, imagine the damage that could do to your project. It could easily be millions of dollars.

A water build up extension is small. But it is commonly added to Builder’s Risk policies for a good reason  water damage is really expensive.

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