Builder’s risk insurance protects a building from property damage when it’s under construction, as well as covers construction materials and equipment. Usually the building owner or general contractor in charge of the project will take out a policy for the project, and it’s likely required for financed building projects.
Builder’s risk insurance is a type of property insurance that protects against damage or loss to a building under construction. It can cover the building itself, equipment and construction materials needed to build. The policy typically ends when the building is complete.
Construction comes with risks involving heavy equipment, defective materials, inadequate craftsmanship and unexpected weather, and this insurance makes sure those invested in the property don’t suffer huge financial losses.
What does builder’s risk insurance cover?
Every insurance company offers different coverage with a builder’s risk policy, but common options include:
Building. The building under construction is protected against fire, lightning, explosions, theft of materials or building equipment, vandalism and specified storms like wind or hail. Some policies also include water damage caused by drain or sewer backups.
General or property damage liability. Some policies include coverage to protect against property damage and injuries to visitors of the construction site.
Equipment testing or breakdowns. You may be able to keep work flowing with coverage against damage that happens while testing equipment or equipment mechanical breakdowns.
Offsite storage. You can safeguard equipment and materials stored at an offsite storage unit from theft and storm damage too.
Business income protection. Some insurers offer protection that helps you recover lost income if the building project can’t be completed on time. This may be an add-on to builder’s risk insurance or separate business policy.
Debris or pollutant removal. Your policy may pay the cost of removing debris and partial building sections damaged in a covered situation.
Ordinance or law changes. Get protection in case building codes change during construction and add unexpected costs to the building project.
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Your builder’s risk policy may not cover several areas of potential construction damage. Make sure to check your policy for these exclusions:
Earthquakes and floods
Wind in certain high-risk areas
Wear and tear of equipment or building materials
Rust or decay
Defective design or craftsmanship
Contractor or employee theft
War or government actions
Who needs building construction insurance?
Any person or business invested in a building project should consider construction insurance since construction involves a variety of damage risks. While subcontractors may buy specialized policies to cover their risks in the project, the builder or building owner may buy the policy for the main construction.
If the builder already offers insurance for the project, the owner may not need a separate policy unless certain risks aren’t protected.
Am I required to buy a policy?
If the building project is funded by a lender or investor, the lender will probably require insurance. However, your city or state may not require coverage for the property if you’re financing your own project.
Even if it’s not required, a building construction policy may still be a wise investment. A building site has many hazards that could result in heavy financial consequences if you’re not protected.
How much does a builder’s policy cost?
Your exact cost will vary based on your specific project and the risks involved. Insurance companies consider several factors when determining an appropriate premium:
Type of construction. The type of building can influence the risks involved due to the equipment needed and how contractors will carry out the work. Also, building a new structure will cost more than a partial renovation.
Location. Your building’s location can raise the premium due to increased risk of theft- or weather-related claims.
Property value. Because you generally choose a limit that can cover the building’s cost, its end value affects how much you pay to insure it.
Length of the project. If your insurance company needs to protect your project over a long period, it faces a higher chance of paying for an accident or weather damage.
What other coverage does a building project need?
Your project may need insurance for more than the building under construction. Make sure you’re abiding by local and federal insurance employee laws and building codes.
Insurance to consider includes:
General or public liability. Visitors or guests other than contractors could receive injuries or damage to personal property. General liability can also cover false accusations or advertising damages as well.
Building warranty. The builder or property owner can buy a warranty to make repairs for unsatisfactory workmanship, materials or building structure.
Workers’ compensation. The contractor may need workers’ compensation for subcontractors or employees, and an owner hiring employees needs this insurance as well.
Compare business insurance
Chances are your building project needs insurance to cover its high risks for weather damage or theft of equipment and construction materials. Because coverage and benefits offered vary widely among insurance companies, you can compare several business insurance policies until you find the best option to suit your project.
Frequently asked questions about builder’s risk insurance
Yes, you can buy builder’s risk insurance to cover renovations or additions to your property.
Yes, construction policies are available for multiple projects. This option works well for owners constructing at several locations or for contractors who shoulder the coverage for their many projects.
The contractor’s own professional liability insurance should pay for the property damage. You may want to ensure that contractors hold this type of policy before hiring them.
It depends on the insurance company, but many companies will insure a newly started project. However, many companies deny coverage if a large percentage of construction is already complete.
You should likely insure at least up to the value of the construction project. You might also consider extra coverage in case expenses exceed your expectations or if damage causes higher building costs.
Sarah George is a writer at Finder who unravels complicated topics about insurance, business and finance. She's been wordsmithing for nearly five years, after earning an English education degree. Her insurance know-how has been featured on CarInsurance.com. You can usually find Sarah sipping hot tea and talking through movie plots in her downtime.
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