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Builders Risk Insurance Policy Information

Builders Risk Insurance

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 $37/mo. Get a fast quote and your certificate of insurance now.

Below are some answers to commonly asked builder's risk insurance questions:

What Is Builders Risk Insurance?

Builders risk insurance is a type of insurance coverage that protects against physical damage to a construction project. This type of insurance is typically purchased by the owner of the project, but it can also be purchased by the general contractor or other parties involved in the construction process.

Builders risk insurance covers a wide range of perils, including fire, wind, hail, lightning, and vandalism. It may also cover losses due to theft, water damage, and other unforeseen events. The policy typically covers the building materials, equipment, and other property used in the construction process.

Builders risk insurance is important because construction projects can be complex and involve many different parties and risks. Without this type of insurance, the owner of the project could be financially responsible for any damages that occur during construction. This could result in costly repairs and delays in the construction process.

Builders risk insurance is often required by lenders or mortgage companies as a condition of financing a construction project. It is also often required by the owner of the project as a way to protect their investment. By purchasing builders risk insurance, the owner can be confident that their project will be protected from unexpected events that may cause damage or delay the construction process.

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 $37 to $78 per month based on location and project size and duration.

A rule of thumb is that 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.

What Does Builders Risk Insurance Cover?

Building Renovation

Builders risk insurance is a type of insurance policy designed to protect construction projects and the materials used in them. It covers the physical structure being built, as well as any materials or equipment used in the construction process. This includes everything from lumber and concrete to tools and machinery.

Builders risk insurance can provide coverage for a variety of risks, including fire, wind, hail, theft, and vandalism. It can also cover damage caused by accidents, such as a worker falling off a ladder or a piece of equipment breaking down.

In addition to covering the physical structure and materials, builders risk insurance can also provide liability coverage for contractors and subcontractors working on the project. This can protect them from financial losses if they are sued for any accidents or injuries that occur on the job site.

Builders risk insurance can be purchased by the owner of the construction project, the general contractor, or the subcontractor. It is typically purchased at the beginning of a construction project and remains in effect until the project is completed.

Overall, builders risk insurance provides a valuable layer of protection for construction projects, helping to ensure that any unexpected losses or damages are financially covered. This can help to reduce the risk of financial losses and allow construction projects to be completed smoothly and successfully.

A residential 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?

Home Building

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 residential 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.

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.

Project Length

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

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

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.

Jobsite Security

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?

Home Under Construction

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 residential 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:

  • Foundations
  • 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 Causes 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.

What Does Builders Risk Insurance Cover & Pay For?

Builders Risk Insurance Claim Form

Builders risk insurance is a type of property insurance that covers physical damage or loss to a construction project while it is under construction. Here are some examples of claims that could be covered by builders risk insurance and how the policy can help pay for the losses:

  • Fire damage: If a fire breaks out on the construction site and causes damage to the building or materials, builders risk insurance can help cover the costs of repairing or replacing the damaged property.
  • Theft: If construction materials or equipment are stolen from the site, builders risk insurance can help cover the costs of replacing the stolen items.
  • Weather-related damage: If a storm or other weather event causes damage to the construction project, builders risk insurance can help cover the costs of repairing or replacing the damaged property.v
  • Vandalism: If vandals damage the construction project, builders risk insurance can help cover the costs of repairing or replacing the damaged property.
  • Accidents: If an accident occurs on the construction site and causes damage to the building or materials, builders risk insurance can help cover the costs of repairing or replacing the damaged property.

In each of these examples, builders risk insurance can help pay for the losses by covering the cost of repairs or replacements. The specific details of coverage may vary depending on the policy, but typically builders risk insurance is designed to protect the property owner, general contractor, and subcontractors from financial losses during construction.

Builders Risk Insurance - The Bottom Line

Be sure to work with a knowledgeable commercial insurance broker when choosing the type and amount of builders risk coverage you need.

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.

Contractors And Home Improvement Insurance

The contracting industry is a field that involves a lot of risks, both for the contractor and for the clients they work for. This is why commercial insurance is so important for contractors. Insurance can protect contractors from a variety of potential losses, such as:

Liability: If a contractor causes damage to a client's property or if a client is injured while on a job site, the contractor could be held legally responsible. Liability insurance can cover legal fees and any settlements or judgments that may be awarded.

Property damage: Contractors often use a lot of expensive equipment and tools, and there is always a risk that this equipment could be damaged or stolen. Commercial property insurance can help cover the cost of replacing damaged or stolen equipment.

Business interruption: If a contractor is unable to work due to an unforeseen event, such as a natural disaster, insurance can help cover their lost income during this time.

Workers compensation: If a contractor or one of their employees is injured on the job, worker's comp can help cover medical expenses and lost wages.

Overall, commercial insurance is an important risk management tool for contractors. It can provide financial protection against a wide range of potential losses, helping contractors to stay in business and continue serving their clients.

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.

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