Whether you’re a homeowner renovating your own home or a contractor building your client’s dream house, builder’s risk insurance is a great way to protect your project from financial setbacks if something goes wrong.
You’ll not often need to buy it unless you’re in the construction or contracting business, so whether you buy it often or never, we’re here to help you figure out what it is, what it isn’t, how much it costs, and everything in between!
What is Builder’s Risk insurance?
Builder’s risk insurance is a specific type of insurance that covers property owners and their builders for projects under construction, repair or renovation. It’s also commonly referred to as course of construction insurance because it covers your construction projects while they’re being built.
Builder’s risk insurance differs from a typical construction policy as it will insure a specific project rather than a contractor’s overall business. Various stakeholders can also purchase it in construction projects.
Who needs Builder’s Risk Insurance?
Anybody involved financially in a construction project needs a builder’s risk insurance policy. Whether you buy the policy or another party does, you should ensure you’re named as an insured party. Sometimes, you may even want your own separate policy; your insurance broker will be best placed to advise you on this.
As an example, some types of people that should be included in a builder’s risk insurance policy are:
- Property Owner
- Contractors (both general and subcontractors)
- Banks or lenders
- Project managers
What does Builder’s Risk Insurance Cover?
Builder’s risk insurance covers the cost of repairing buildings and building materials in the event of weather, fire, vandalism or water damage. The main objective is to keep your project on track and avoid any financial losses that could happen from when construction begins to when the building is fully completed.
The types of costs that builder’s risk insurance policy covers are bucketed into two distinct categories; hard costs and soft costs.
What are the hard costs of builder’s risk?
Hard costs consist of the actual physical property and materials involved in the project cost. For example, bricks, timber, windows, and concrete. They’re generally at risk from theft, severe weather and fire. Your policy would cover their replacement costs.
What are the soft costs of builder’s risk?
If you have a covered loss to the physical property of a building project, it can often result in delays to the construction project completion date. The knock-on effect is that you might incur unexpected costs, for example, legal fees, interest fees on loans, additional permitting and inspection fees, and property and real estate taxes.
These soft costs are generally covered only if explicitly stated in an endorsement of your policy. Basically, it’s a form of add-on coverage that needs to be clearly stated. As always, your insurance broker will be able to advise you best.
Why is insuring both hard and soft costs important
While hard costs are generally the more important of the two costs to cover, it’s important to recognise the risk of soft costs depending on your role in the project. For example, if you’re project is home construction, and you’re the homeowner, you could be at risk of incurring additional taxes or fees for permits.
Similarly, if you’re a commercial building developer and your job site is on pause, you could face additional interest on loans or financing. Having the proper insurance is key to a risk mitigation plan.
What does a builder’s risk policy not cover?
While a well throughout policy will offer building projects and their stakeholder’s great coverage, it’s not a catch-all by any stretch of the imagination. There are some key areas not covered by builders risk, such as:
- Damage to an unfinished structure due to faulty design, construction, or materials. Each contractor on the project site should have their own professional liability insurance to cover this instead.
- Contractor’s equipment, whether that’s theft or even just damage and mechanical breakdowns.
- Work stoppages due to regulators or injuries
- Earthquakes, floods and other significant natural disasters.
How much does builders risk insurance cost?
Just like each construction project is different, the cost of each builders risk policy is different. However, on a more average-sized policy, builder’s risk insurance can generally cost between $650 – $1000 per project.
There is a wide range of factors that come into consideration when insurance companies calculate your premium amount, such as:
- How long the project will go on for
- Total project cost
- The physical size of the building site
- Location of the building project
- Amount of experience the project team has
- The amount of coverage required
- Where materials are stored (i.e. are they safe from damage and theft)
How much coverage should I purchase?
You should discuss this with your licensed insurance broker. However, your builder’s risk policy should, at the very least, cover the project’s entire hard cost. Basically, cover buildings and materials at a minimum.
What is blanket builders risk?
This is a type of builder’s risk coverage that gives contractors protection across multiple jobs for an entire year, rather than having to insure each project individually.
Generally speaking, as a contractor, you would likely want to repeat similar jobs to find this kind of policy useful. Your insurance broker can help to see if this is a fit for you or not.
Builders Risk FAQs
Why do I need Builder’s Risk insurance?
You need builder’s risk insurance to cover your building project from any insured loss or damage that could stop your project from completing.
How Long Does Builder’s Risk Insurance Last?
Builder’s risk cover lasts from the start of a construction project to the end of the project, it will cover damages that occur during construction. Once an owner signs completion documents and takes the keys, this policy typically stops.
What is the difference between property insurance and builders risk insurance?
Commercial property insurance covers a completed building and its contents that a business owns. In contrast, builder’s risk will only cover the construction or renovation project of that building.
Who pays for Builder’s Risk Insurance?
The property owner is generally responsible for the cost of builder’s risk insurance.
Do I need a builder’s risk policy if I already have contractors insurance?
Yes. Contractors insurance is a type of business insurance that covers a contractor’s work and any liability they might be exposed to. However, it doesn’t typically cover the same costs that a builder’s risk policy does. For example, it likely won’t protect the building you’re working on if there’s property damage.
