Whether you are a seasoned construction professional or plan to embark on your very first home renovation project, builder’s insurance or “course of construction” insurance is a must-have. In fact, it is required by some local and state building codes. And proof of it may be needed to receive financing from a lender.
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Regardless of if it is required or not, it is important to accept that so much can go wrong when building or renovating a new home or structure. So, so much. And we’re not just talking about denting a brand new appliance during installation. No, we’re talking about circumstances beyond your control including damages caused by fire, wind, vandalism, storms, theft–the list goes on. So when building, this kind of insurance really is as critical to have in your toolbelt as all of those nails and hammers.
General contractors, custom builders and property owners alike can all obtain builder’s insurance. But at what cost? Let’s break it down for you:
How to Calculate the Cost of Builder’s Insurance
Typically, Builder’s Risk Insurance premiums fall between one and four percent of total construction costs.
So, generally speaking, if the construction budget is $100,000, you could spend anywhere between $1K – $4K on insurance.
The cost of Builder’s Risk Insurance depends on various factors like coverage types, construction types, site size, exclusions, and overall cost of the construction project. Further, insurance policies will consider your business characteristics too–that is, if you are not the property owner. These factors include things like how many employees you have, overall level of experience of employees, how much revenue you earn, and the amount of business you conduct. Remember that:
- Building Materials Matter
The type of building you plan to construct will play a big role in your insurance cost. It’s easy to understand if you think of it like this: the more potentially flammable the material–the more money it will take to insure it. All-steel, masonry non-combustible and fire resistive materials may cost more up front, but can save you some money on your insurance premium. Frame and joisted masonry-made buildings will be made of wood and other combustible materials and therefore will likely raise your insurance cost a bit.
- The Size of the Project Will Be Factored In
Site size and overall cost of the project will be considered when determining an end cost of builder’s insurance. For example, if you are building a new shed, the insurance cost will most likely be less than if you were building an entire new home.
- Experience Will Be Considered
Insurance companies will want to know your level of experience in completing building projects–especially if you are purchasing this insurance as a business owner. Insurance providers will likely consider the years you have in business, the size of your business, the location of your business, the number of employees, and their work history.
What Builder’s Insurance Won’t Cover
Sadly, you’ll find that builder’s insurance won’t cover anything and everything that can go wrong while constructing or renovating a structure. There will be exclusions, but you can typically purchase additional policies to cover some of these risks. Two common exclusions include damages caused by earthquakes and flooding. You can purchase additional coverage for these kinds of circumstances. Further a builder’s insurance policy won’t cover vehicle damages, you will need a commercial auto policy for that. And problems with the actual product including flaws in design, workmanship, or manufacturing defects won’t be covered either. A professional liability coverage plan would better suit those kinds of issues.
How to Find a Builder’s Insurance Provider
You’ll want to find an insurance provider that works with construction and building projects often. Take a look at CoverWallet, provider aggregator that can help you sift through your options or go with a company like Embroker that has a dedicated area for construction within their website.
New to the building game? Get more on Builder’s Risk Insurance for contractors here.
