Read our complete guide to find out everything you need to know about builder’s risk insurance for your contracting business.
- What is builder’s risk insurance?
- What does builder’s risk insurance cover?
- What doesn’t builder’s risk insurance cover?
- Who needs builder’s risk insurance?
- How much does builder’s risk insurance cost?
- How do I get builder’s risk insurance?
What is builder’s risk insurance?
Builder’s risk insurance is a specific type of property insurance that protects a building while it is under construction or being renovated. Besides insuring the building itself, builder’s risk can also include protection for construction materials, labor costs, and temporary structures such as fencing and scaffolding.
Builder’s risk insurance is especially important for general contractors who are doing new build construction or renovations. The coverage term begins when construction begins and typically terminates when the project is complete and turned over to the owner.
Example: Your general contracting business is building a single-family home. The foundation has been poured, and construction is 40% complete when a severe windstorm passes through the area and destroys the partially-built house. Your builder’s risk insurance would compensate you for the cost of the materials used so far, and the labor costs you’ve expended in completing 40% of the house.
What does builder’s risk insurance cover?
Builder’s risk insurance covers damage to buildings and materials while under construction. From damage caused by extreme weather or a break-in, builder’s risk protects against many common perils, including:
- Theft and vandalism
What doesn’t builder’s risk insurance cover?
Any damages that result from faulty design, work, or materials are excluded from builder’s risk coverage. For example, if you are constructing a new house, and it burns down from a wildfire, your business would be covered. On the other hand, if the building collapses due to a mistake in the structural building plan, builder’s risk would not offer any coverage.
Builder’s risk insurance also commonly excludes the following:
- Wear and tear
- Mechanical breakdown
- Employee dishonesty or theft
- Damage resulting from faulty workmanship, design, planning, and materials
Who needs builder’s risk insurance?
For those who are financially involved in a new construction or renovation project, builder’s risk insurance is an important coverage to have and may even be required if the project is financed by a lender or to comply with local and state building codes.
Typically, general contractors or the custom builder are the ones to purchase the coverage policy, but it is not unusual for the property owner to purchase the policy. It may be more beneficial for the property owner to own the policy, as any claim being paid out would go directly to the property owner to then be distributed to the general contractor or builder.
How much does builder’s risk insurance cost?
The cost of builder’s risk insurance depends greatly on the coverage types, exclusions, and overall cost of the construction project. Typically, builder’s risk insurance premiums fall between one and four percent of total construction costs.
How do I get builder’s risk insurance?
There are many factors to consider when purchasing builder’s risk insurance—from the financial strength of an insurer to the pricing that you’re offered. Builder’s risk insurance is a fairly custom product, as no two construction projects are the same, so it is particularly important to select an insurance provider that can build custom coverage to fit your project needs.
When selecting an insurance company, there are three main factors you should look at:
- The financial strength of the insurer
- Reputation for customer service
Also note that builder’s risk insurance coverage is often written under an inland marine insurance policy, so it is to your benefit to select an insurer with a strong background in writing inland marine insurance policies.
» Learn more about how to get builder’s risk insurance