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What Is Builders Risk Coverage and How Does It Work?

Friday, November 6, 2020

A building under construction.

The process of building a new structure for residential or commercial use has many risk factors. When hiring a construction firm, a general contractor should have insurance that includes liability and business insurance. Who covers the materials and equipment during the duration of the build? How long does this temporary policy last, and how is your investment protected from start to finish? Understanding how to guard your assets through the construction phase is essential, and your commercial insurance agent at Independent Insurance Associates can help with that.

What Is Builders Risk Insurance?

Builders risk insurance, also known as course of construction insurance, falls under the heading of risk management for your building project. Construction materials should be insured against loss, whether that entails building a new structure or taking on a renovation. Make certain your builder is covered for liability and loss when negotiating the construction contract. You may find that you are responsible for purchasing a builder’s risk policy to secure your project through the building phase.

What Does Builders Risk Insurance Cover?

Builders risk insurance covers damage to the materials, equipment and supplies needed to build your structure. The policy will protect material loss from fire, explosions, theft, vandalism and weather events like lightning and hail. You may need additional coverage, called extensions, for wind, water damage and other acts of God depending on your location. Builders risk coverage does not protect from injury, war, employee theft or earthquakes, though.

Who Needs Builders Risk Coverage?

Any person or business entity involved in the building project should acquire builders risk insurance. This includes the property owner, general contractor, subcontractors, lender, and architect when purchasing a policy for the build duration. Your coverage should begin when contracts are signed and will be in effect until the certificate of occupancy is complete. Be prepared to update your policy if there are significant changes to the agreement. You must correct the details if you part ways with your general contractor or there are changes with your lending institution. Having an excellent relationship with your insurance agent will ensure your policy is updated as needed.

A construction worker holds the blueprint.

How Much Does Builders Risk Insurance Cost?

In general, the cost of this type of policy will be between one and four percent of the total budget. Your location and the inherent risks involved will determine the level of coverage you need. Your agent will likely use an inland marine policy for this type of insurance coverage. Building in an area prone to acts of God like hurricanes, tornados, and flooding will add to the overall cost of your protection, and those acts of God may also be exclusions in your policy. Remember, the expense for builders risk coverage is a temporary measure and is replaced with a much lower insurance cost once the project is complete.

General Liability vs. Builders Risk Insurance

Your builder should carry general liability insurance to cover workplace injury and personal responsibility against loss. Builders Risk covers the essential materials, supplies, and theft. The construction project should be covered with both types of insurance to protect everyone and everything on site.

Builders risk insurance coverage is essential, whether building a new commercial establishment, residence or remodel. Your Independent Insurance Associates agent can answer your questions, and we encourage you to contact us early in the planning phase of your design. We will be happy to create a customized policy to protect your project during the building stage because obtaining sufficient insurance coverage allows security and peace of mind throughout the construction process.