Builder’s risk insurance may sound like a type of business insurance for only contractors and builders, but this isn’t the case. If you’re a retail company, product manufacturer with its own facilities, or a restaurant or food service property owner, you’re a candidate for builder’s risk insurance.
Anyone with a financial interest in the physical property – including contractors, builders, real estate developers, investors and retail companies – can buy this type of coverage from any of the best liability insurance providers.
Learn more about builder’s risk insurance, who needs it and what it covers.
Builder’s risk insurance covers properties at risk for loss and damages during new construction, remodeling or installation. Incurring losses while building would likely delay the project and hurt the budget. In other words, builder’s risk insurance protects the insured against financial losses that arise during construction.
Builder’s risk insurance is broader than standard commercial property insurance, covering a variety of job site exposures, building materials, and fixtures that would need to be replaced or installed if they were damaged.
In some states, you can add insurance endorsements to your builder’s risk insurance policy to cover testing and risks – such as floods and earthquakes. Contact your insurance agent for information on what’s advisable in your geographic area.
Anyone with a financial stake in a property under construction needs builder’s risk insurance.
Insurance company The Hartford recommends these parties acquire a builder’s risk policy:
Standard builder’s risk insurance policies cover property damage to buildings and other types of structures while they’re under construction – during installation or amid a renovation. It also covers any equipment and supplies already onsite, on their way to the construction site or at other site locations.
Builder’s risk insurance also helps with expenses that aren’t explicitly construction-related, but occur from property damage. Here are some costs a builder’s risk policy can cover, according to The Hartford’s website:
The costs associated with a delay include expenditures, lost business income and a delay in receiving tenants’ rent. A builder’s risk policy would typically cover the net profit or loss – before taxes – that would have been earned or incurred from rental income, and additional expenses incurred.
The Hartford points out that every construction project is distinct, so builder’s risk policies will be tailored toward your project. Many insurers will customize a builder’s risk policy with coverage extensions to fit your project’s needs. The Hartford notes the following as common extensions:
Builder’s risk insurance policies can vary beyond standard coverage with common extensions. Some insurers include these add-ons:
Be sure to compare policies from various insurers and speak with an insurance agent to obtain the coverage that best suits your needs.
It’s essential to be aware of what builder’s insurance doesn’t cover. These policies generally don’t cover areas known to be vulnerable to earthquakes, floods or wind. However, you may be able to add extensions to your policy to help insure projects that face perils related to these zones.
Exclusions vary by policy, but these are some primary builder’s risk insurance coverage exclusions:
Generally, builder’s risk insurance exclusions fall into these three categories:
For example, a builder’s insurance policy wouldn’t cover a fire, but building losses from a fire triggered by an earthquake can fall into the limited or broad categories. Be sure to check your policy specifics and the extent of its exclusions.
Real estate attorneys say faulty workmanship exclusions are perhaps the most controversial – and most relied upon – builder’s risk policy exclusion, especially since a construction project has a high probability of error. This aspect of builder’s risk exclusions is notable because, according to a national survey from the Associated General Contractors of America, 80% of contractors report difficulty finding qualified craft workers to hire. Because it’s so difficult to find qualified craft workers, expect this risk trend to continue.
Generally, builder’s risk policies exclude costs incurred by repairing a subcontractor’s faulty work, according to The Hartford. However, the insurer notes that “policies with an ensuing loss provision may cover the resulting damage to other property caused by the faulty work.”
Legal experts say that under an ensuing loss provision, damage that occurs before and due to faulty workmanship may be covered. However, you need collateral or subsequent damage to trigger coverage with some builder’s risk insurance policies. Others require that a separate peril cause the damage.
Faulty workmanship exclusions are known to be controversial, so make sure you’re aware of your policy’s specifics.
Whether you’re working with a new insurer or dealing with a company with which you already have a business owners insurance policy, general liability coverage, or professional liability coverage, you’ll need to work with your representative to ensure there are no coverage gaps.
Like standard insurance policies, a builder’s risk insurance policy consists of the insuring agreement, exclusions, extensions, conditions and endorsements.
Based on the above exclusions, it’s imperative that you look for these inclusions or endorsements:
You should also take these administrative areas into consideration:
The Hartford recommends considering all your exposures in various construction phases before purchasing coverage. For instance, consider your risk exposure at the construction site, in transit and at a temporary storage site.
The insurer notes that you may have the option to get broad protection for property of all kinds at all locations, or narrow your coverage to specific property and risks.
When obtaining builder’s risk insurance, you should review your policy carefully and ensure there aren’t any coverage gaps.
Contact an insurance agent or broker to receive a builder’s insurance policy quote that takes all your needs into account. Builder’s risk policy costs vary by project, including the coverage amounts, limits and policy endorsements. Here are some other factors insurers consider when they list their fees:
According to The Hartford, a good rule of thumb is to choose coverage limits equal to anticipated construction costs. If your construction project has a high cost, it may result in higher premiums.
When considering this type of insurance, you need to read and understand the entire builder’s risk policy: all included coverage, conditions and exclusions. Compare this to your risk management plan, and speak with an insurance representative to address areas of concern.