Builders Risk Insurance Policy Information
Builders Risk Insurance. How much coverage should you buy on a building that is just being built? Builders risk coverage is unusual because the building under construction does not have any value when construction begins. It does not reach its total value until construction is complete and coverage ends. This means that the values at risk are significantly less than the limit of insurance for almost the entire policy period. This situation is why standard property rates are not appropriate.
Custom homebuilders, general contractors and even property owners often find themselves searching for insurance coverage to protect personal or business projects under construction. With builders risk insurance, they can get comprehensive coverage against all construction related risks.
Builders risk protects a person's or organizations insurable interest in materials, fixtures and/or equipment to be installed during the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause. It is often required to comply with government regulations or as a condition to meeting banking or other contractual arrangements.
Builders risk insurance protects your contracting business from lawsuits with rates as low as $67/mo. Get a fast quote and your certificate of insurance now.
Below are some answers to commonly asked surveyor insurance questions:
- How Much Does Builders Risk Insurance Cost?
- What Is Builders Risk Insurance?
- What Does Builders Risk Insurance Cover?
- What Are The Limits Of Coverage In A Builders Risk Policy?
- What Is Excluded From A Builders Risk Insurance Policy?
- Who Buys Builder's Risk Insurance?
- What Property Is Covered In A Builders Risk Policy?
- What Are The Covered Caused Of A Loss In A Builders Risk Policy?
How Much Does Builders Risk Insurance Cost?
The average price of a standard $1,000,000/$2,000,000 General Liability Insurance policy for a small builders risk policy ranges from $67 to $98 per month based on location and project size and duration.
What Is Builders Risk Insurance?
While a builders risk insurance policy itself is relatively simple to obtain, ensuring the proper coverage, limits and policy type are in place requires a core understanding of the industry and the associated risks which occur during the course of construction.
Builders risk coverage is usually written on an all risks basis (coverage that can exclude only risks that have been specifically outlined in the contract) and typically applies not only to property at the construction site, but also to property at off-site storage locations and in transit.
Builders risk insurance can be written on either a completed value or a reporting form basis; in either case, the estimated completed value of the project is used as the limit of insurance.
What Does Builders Risk Insurance Cover?
Builders risk insures against direct physical loss of or damage to covered property at the premises listed and described on the declarations. The loss or damage must be the direct result of a covered cause of loss.
A builders risk insurance policy can be structured to cover the following:
Your Buildings. Helps cover the building and structures at the described premises including: Foundations, Fixtures, machinery, equipment used to service the building and other building materials and supplies used for construction intended to be a permanent part of the project and temporary structures constructed and used on the job site such as scaffolding, construction forms, and cribbing.
General Liability. To help protect the insured against legal liability caused by bodily injury, property damage, personal injury, and advertising injury to others.
Profits. builders risk insurance covers more than just labor, materials and equipment that are needed for new construction project; it can cover profits as well. With this insurance, contractors can be reimbursed for the pro rata percentage of profit earned as of the date of the loss - based on the profit assumptions included in the job estimate.
Equipment Breakdown. Provides coverage for damage to covered property caused by mechanical breakdown of covered equipment, artificially generated current damaging covered equipment, explosion of steam boilers or loss of steam/hot water boilers.
Valuable Papers and Electronic Data. Contractors and construction companies rely on blueprints, schematics and other paper and electronic documents and data in the course of conducting their business. Builders risk insurance provides up compensation to research, restore and replace important documents and electronic data that were lost in a covered risk.
Modular Components. Businesses often store important and expensive materials and equipment in off-site modular units. With builders risk insurance, such modular units and components are covered while they are being used for temporary storage or in transit. Location of the storage unit does not need to be listed in the policy.
Testing. Construction and contractor businesses often test out newly installed equipment. In the event of a physical loss caused by electrical, mechanical, pneumatic and hydrostatic testing, builders risk insurance policy can help cover the costs of the loss. Broader testing coverage can be added to the builders risk insurance policy to include boilers, production equipment, pressure vessels and power generation equipment.
Ordinance and Law. Covers the increased cost to repair or rebuild due to the enforcement of municipal laws or ordinances regulating the construction or repair of damage buildings caused by an insured loss.
Identity Restoration. Coverage for the chance you, the business owner, become a victim of identity theft.
What Are The Limits Of Coverage In A Builders Risk Policy?
The most the insurance company pays for any one loss or damage to covered property is the limit of insurance on the declarations that applies. The sub-limit for coverage on signs is $2,500. The limits that apply to Coverage Extensions and to Fire Department Service Charge and Pollution Clean Up and Removal under Additional Coverages are in addition to this limit. However, the limit for Preservation of Property is not.
The builders risk insurance policy will pay for damages up to the coverage limit. The limit must accurately reflect the total completed value of the structure (all materials and labor costs, excluding land value).
The construction budget is the best source for determining the appropriate limit of insurance.
Builders risk insurance policies can often be written in terms of three months, six months, or 12 months. If the project is not completed by the end of the initial policy term, it can often be extended, but usually only one time.
What Is Excluded From A Builders Risk Insurance Policy?
Land and water. Land includes the land beneath the covered building or structure. Water means all water on the premises. Specific property while outside buildings: trees, plants, shrubs, and lawns except for such property on vegetated roofs, television and radio antennas and their towers, masts, and lead-in wiring, including satellite dishes and signs not attached to buildings.
All covered causes of loss forms are subject to the following exclusions:
- Damage to property that mold, mildew, and fungus cause - These losses are excluded unless they are caused by or result from a covered fire loss.
- Earth movement - Any form of earth movement is excluded. This includes earthquake, mudslide, mudflow, and volcanic eruption. There is an exception for limited coverage for loss or damage due to volcanic action.
- Governmental action - Coverage does not apply when the government takes over property for any reason and damages it. An exception applies when the reason for the damage is to stop the spread of a covered fire.
- Nuclear hazard - There is no coverage for loss or damage that nuclear radiation, radioactivity, and similar events cause.
- Ordinance or law - Any increase in the cost of a loss because of enforcing or complying with ordinances or laws is excluded. This applies even if the building must be torn down and rebuilt to meet and comply with building codes and ordinances.
- Utility services - Coverage does not apply if a utility service fails due to a problem at a location away from the named insured's premises. Coverage also does not apply to a problem on the named insured's premises from equipment used to bring the off premises utility service onto the premises.
- War and military action - Loss or damage due to war and military action of any kind is excluded.
- Water damage - Any loss or damage that water causes is excluded. This includes flood, backup of sewers and drains, wind driven rain, and similar events.
Note that these policies do not cover accidents and injuries at the workplace or liability risks. They will also exclude certain acts of nature, such as earthquakes and floods. Typically you can buy flood insurance and earthquake insurance separately. Be sure to work with an agent who will help assess your risks and can review your coverage carefully.
How Much Does Builders Risk Insurance Cost?
The policy will typically be in the range of one to four percent of the construction cost, but it will depend on the type of coverage and exclusions that the policy will have. The importance of having a solid insurance company is that they will expedite your claims and will help you solve any potential claims during the construction process.
Some companies can cover the soft costs of the project, but you will need to ask the insurance company to include it in your coverage but be aware that this might increase the cost of your builders risk. The builders risk insurance is part of your project's soft costs and even though it will cost you some money, it is better to have it than not having it when is needed.
Builders Risk Underwriting Considerations
New Construction or Renovation
New construction is considered better than renovation work for several reasons:
- New construction is a known quantity. The underwriter can focus on and freely evaluate what is being built and the building contractor's ability and qualifications to successfully complete the project. The building value when the project begins is zero and grows through a normal and predictable process to 100% at the end. On the other hand, renovation projects can be (and usually are) full of surprises. The underwriter may be familiar with the contractor that does the renovations but not know anything about previous builders and their construction techniques. A great deal of important information about the building or structure is hidden behind the walls and the number of unknown factors and their impact on the building may be significant. The building or structure's existing value may have to be insured in addition to the values installed as part of the renovation. This makes it more difficult to establish the correct values at any one point in time and then price them accordingly.
- New construction usually takes place in less congested areas. This makes concerns about exposing occupancies less of a concern because there are few, if any, surrounding occupancies. Renovations usually take place in congested urban areas and exposing buildings or operations may be adjacent or relatively nearby. Structural problems or difficult occupancies in adjacent buildings or criminal activity in the surrounding area can greatly increase the possibility of loss and delay construction.
- New construction usually involves building materials readily available in the local area. Renovation projects frequently require materials that exactly match existing building features. This increases the project cost and duration because some materials may not be available locally or must be custom made.
Every construction project has a definite start and end date. Longer construction projects require more monitoring and attention than shorter ones. Construction delays can extend construction beyond the original completion date which can lead to various disputes and possible abandonment. Longer projects are also more subject to changes in the economy so financial underwriting becomes more important.
The contractor is the factor that most affects the project's success. Its background, involvement with similar projects in the past, financial strength, type of job site supervision it provides, and the number and types of subcontractors it uses are all critical elements that must be considered.
The owner drives the project and provides the funds necessary to keep it moving forward. Any financial problems on the owner's part may result in the project not being completed on time or at all. The owner has a vested interest in the project and in having it finished on time and so should be actively involved. It should monitor the contractor's activity, require periodic progress reports, closely evaluate quality issues, and generally assist as needed to keep the project moving forward on time and on budget.
Owners with lackadaisical attitudes encourage the same attitude in contractors. This can result in not meeting time frames, inferior quality of work, and greater potential for accidents and losses on the job site. Owners that have financial problems may suddenly abandon their projects or they may suddenly have a rash of convenient "accidents."
Construction & Protection
Buildings under construction usually do not have fire suppression systems or fire cut offs to stop or reduce the spread of fire. Frame buildings are more likely candidates for a total loss than fire resistive buildings, simply because of the type of construction materials used. Public fire protection is important because fire departments extinguish fires or keep them from spreading. Frame structures being built at remote locations with no public fire protection are much more likely to sustain a major fire loss than fire resistive buildings under construction in downtown areas of major cities.
Construction jobsites can be attractive nuisances to children in neighborhoods adjacent to them. They can also be warm places for homeless persons to sleep or readily available sources of building materials for thieves when construction crews leave for the day. Both owners and contractors must be sensitive to conditions and take appropriate steps to provide the level of security needed.
Security initiatives may include independent contracted watch services, employees who act as watchpersons on the site after working hours, fencing, cordoning off or in some other way isolating the job site, or a combination of these. The level and extent of the security provided should be in direct proportion to the project's size, duration, location, and the types of construction materials involved.
Speculative Building vs Building To Specifications
Some building projects are based on the contractor's speculation that there will eventually be a purchaser. This approach can be very profitable during a building "boom" but disastrous during an economic downturn. Speculative building adds to the risk of any project and underwriters should be extremely careful and thoroughly evaluate any speculative construction project and its contractor.
Who Buys Builder's Risk Insurance?
Coverage is often purchased by the custom builder and may also be purchased by the property owner. The term "builder" is misleading because insureds can include not only the contractor(s) performing the work, but the ultimate owner, lending institution and others.
Many architects believe that it is the property owner who should have the builders risk policy, because they have already paid for the improvements to their land, and if the builder receives the funds directly from a claim, theoretically, he/she could abscond with that benefit.
It is far safer for the property owner to obtain the builders risk policy, because they already own the building, even while it is under construction. If something happens to the under-construction project, then they should be the beneficiary and control how it is spent. Yes, the builder ends up receiving the funds in the end, to rebuild damage, but this method gives the control of the insurance benefit to the owner.
Suppliers of materials, although having an insurable interest in the property being used in the construction, are not normally candidates for builders risk insurance.
What Property Is Covered In A Builders Risk Policy?
Building under Construction is the only covered property. It is the building or other structure under construction or renovation listed and described on the declarations. It includes the following described property:
- Property that is intended to be a permanent part of the building or structure that is within 100 feet of the premises: This applies to fixtures, machinery, and equipment used to service the building and other building materials and supplies used for construction purposes.
- Temporary structures constructed and used on the job site: Scaffolding, construction forms, and cribbing and similar items are covered but not if covered by other insurance.
What Are The Covered Caused Of A Loss In A Builders Risk Policy?
There are three available causes of loss forms. The basic and broad forms list the covered causes of loss. The special form covers any cause of loss not excluded.
- Causes of Loss-Basic Form: This form includes fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, sprinkler leakage, vandalism, sinkhole collapse, and volcanic action.
- Causes of Loss-Broad Form: This is an intermediate level form that includes breakage of glass, falling objects, weight of snow, ice, or sleet, and water damage in addition to the causes of loss in the Causes of Loss-Basic Form.
- Causes of Loss-Special Form: This form covers any cause of loss not excluded or limited. It does not cover theft of building materials.
Builders Risk Insurance
Builders Risk Insurance can be especially important if you are working with materials that are prone to damage, or if you are working in an area that is prone to certain types of severe weather. It is also important coverage that protects your investment from unforeseen risks.
Following are some terms that are a key to understanding builder's risk: builder's risk coverage, builders risk covers, builder's risk insurance, builders risk policy, commercial property policy, faulty design planning, fire department service, groundup construction renovation, inland marine coverage, liability insurance coverage, contractors equipment, construction insurance, organization's insurable interest, policy expiration date, real estate insurance, risk insurance and risk insurance coverage.
Be sure to work with a knowledgeable commercial insurance broker when choosing the type and amount of builders risk coverage you need.
Small Business Economic Data & Insurance Regulations
Perhaps you have the next great idea for a product or service that you know will appeal to your local area. Maybe you want to contribute to the economic growth of your community. Whatever the reason is, if you're thinking about starting a small business, it's important to understand pertinent information relating to small businesses in the United States; namely economic information and insurance regulations. After all, if you want your small business to succeed, you have to understand the economic trends organizations of a similar size in your area.
Likewise, you want to ensure that your small business is well protected with the right business insurance and that you are in compliance with the rules and regulations that pertain to commercial insurance in your region.
Read up on economic statistics and insurance information that relates to small business owners in the United States.
Small Business Economic Data In The United States
Here's a look at some information that was compiled by the Small Business Association (SBA) regarding the economic data that pertains to small businesses in the United States:
- In 2015, small businesses in the United States employed an estimated 58.9 million American workers, or 47.5 percent of the nation's private workforce.
- Largest shares = fewer than 100 employees. The small businesses that employed 100 people or less had the largest share of employment amount small businesses.
- Employment increased by nearly 2 percent. In 2018, employment amongst small businesses increased by 1.8 percent, which is an increase of 1 percent from the prior year.
- Increase in proprietors. In 2016, the number of small business proprietors increased by 2.3 percent.
- In 2015, small businesses were responsible for creating 1.9 million net jobs. Organizations that employed 20 people or less had the largest gains, as they added an estimated 1.1 million net jobs.
- There were 5.7 million loans that were value less than $100,000 issued by lenders in the United States in 2016. These loans were issued under the Community Reinvestment Act.
- Small business owners that were self-employed at the incorporated businesses that they owned reported a median income of $50,347 in 2016.
- Small business owners that were self-employed at the unincorporated businesses that they owned reported a median income of $23,060 in 2016.
Small Business Insurance Information
In the business world, there are many risks faced by company's every day. The best way that business owners can protect themselves from these perils is by carrying the right insurance coverage.
The The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight.
Commercial insurance is particularly important for small business owners, as they stand to lose a lot more. Should a situation arise - a lawsuit, property damage, theft, etc. - small business owners could end up facing serious financial turmoil.
According to the SBA, having the right insurance plan in place can help you avoid major pitfalls. Your business insurance should offer coverage for all of your assets. It should also include liability and casual coverage. The SBA recommends the following insurance plans for small business owners:
- Commercial Property Insurance: In the case of an unplanned disaster - fire, flood, vandalism, theft, etc. - this type of coverage will help you avoid paying for the damage out of your own pocket. Even if you rent the property, you should still carry commercial property insurance.
- Commercial Liability Insurance: In the event that a legal situation arises - a negligence lawsuit, for example - commercial liability coverage will provide financial protection. It will cover the cost of legal defense fees, court fees, and even moneys that may be awarded.
- Commercial Auto Insurance: If you operate a vehicle for any activities that are related to your business - transporting and/or delivering goods, or meeting with clients - commercial auto insurance is legally required for businesses of all sizes, including small businesses.
Additional Resources For Contractors & Home Improvement Insurance
Learn about small business contractor's insurance, including what it covers, how much it costs - and how commercial insurance can help protect your contracting business from lawsuits.
- Air Conditioning Systems Installation Repair
- Appliance Repair & Service
- Blacksmith & Metal Workers
- Builders Risk
- Building Cleaning & Maintenance Services
- Cabinet Installer
- Cable And Satellite TV Installer
- Chimney Sweep
- Contractor Liability
- Curtain Cleaners
- Deck Builders
- Door And Window Installers
- Dryer Vent Cleaning
- Drywall Contractor
- Electrical Contractors
- Environmental Remediation Contractors
- Fence Installation
- Fire Sprinkler Contractors
- Fire & Water Restoration Contractors
- Flooring Contractor
- Garage Door Installer And Repair
- Glass Contractor
- Glazier Insurance
- Gutter Installation And Repair
- House Cleaning
- HVAC Contractor
- Insulation Contractor
- Janitorial Cleaning Services
- Lawn Care
- Lawn Irrigation Sprinkler System Installation
- Paperhanging Contractors
- Plastering And Stucco Contractor
- Pressure Washing Contractors
- Propane And Fuel Dealers
- Rug, Upholstery & Carpet Cleaning
- Sandblasting Contractors
- Security Alarm
- Septic Tank Cleaning
- Siding Contractor
- Sign Installation & Repair
- Solar Panel Installers
- Snow Plow
- Stone And Tile Installer
- Swimming Pool Contractor
- Swimming Pool Service And Maintenance
- Tree Surgeon
- Tree Trimming
- Tank Cleaners
- Upholstery Shop
- Waste Haulers & Garbage Collection
- Water Well Drilling
- Welding Contractor
- Wildlife & Pest Control
- Window Cleaning
A contractor that wants to begin or stay in business, liability coverage must be obtained for the premises or operations, off-site locations and products/completed operations exposures. These coverages may be included as a part of a businessowners policy (BOP) or purchased in a commercial general liability (CGL) policy. Owners and contractors protective liability and railroad protective liability coverages may also be required in certain cases in order for a contractor to obtain a particular job.
Physical damage coverage for tools, supplies and equipment, both on and off the contractor's premises, is a concern. Liability exposures at the premises of the contractor, and at the premises of the contractor's customer, must be properly addressed along with completed operations. Business insurance is very important as is workers compensation insurance protection for employees.
Contractors may work under a general contractor as a subcontractor in larger construction projects - like a new commercial site or residential subdivision. They can work on smaller projects directly with a home owner, usually specializing in renovations or remodels.
In business insurance speak, often called 'artisan contractors' or 'casual contractors', they are involved in many aspects of construction and contracting work – and include various trades and skills. Carpenters, painters, plumbers, electricians, roofers, tree trimmers, landscaping are just a few examples. They may do roofing, fencing, drywall, tile work and many other trades that involve skilled work with tools at the customer's premises.
An artisan contractor performs a single trade or job, and each has its own specialized liability needs with its own exposures to risk and accidents. Contractors liability insurance can offer coverage for bodily injury, property damage, advertising injury and medical payments.
Most artisan contractors should have commercial general liability at the very least, but many need broader coverages - like an umbrella to increase their limits of liability, inland marine policy to protect their tools, workers compensation if they have employees, and even commercial auto if they use vehicles for business purposes.
Minimum recommended small business insurance coverage: Business Personal Property, Employee Dishonesty, Contractors' Equipment and Tools, General Liability, Employee Benefits Liability, Umbrella Liability, Automobile Liability and Physical Damage, Hired and Non-owned Auto & Workers Compensation.
Other commercial insurance policies to consider: Building, Business Income with Extra Expense, Earthquake, Flood, Leasehold Interest, Real Property Legal Liability, Accounts Receivable, Builders Risk, Computers, Goods in Transit, Installation Floater, Valuable Papers and Records, Cyber Liability, Employment-related Practicesand Stop Gap Liability.