Alyssa Lane
Builders risk insurance, also known as course-of-construction insurance, is a type of insurance that covers buildings and other structures while they are under construction. It is designed to protect property owners, builders, architects, and contractors from financial losses due to damage, theft, or accidents during the construction process. This type of insurance is typically only in effect during the construction period and may be required for certain government contracts or loan programs. Homeowners considering construction or renovation projects should understand the exclusions in their existing insurance policies and decide whether purchasing builders risk insurance is necessary to ensure adequate coverage. The cost of builders risk insurance can vary depending on factors such as the total estimated value of the project, the expected completion date, and the location's risk factors.
| Characteristics | Values |
|---|---|
| What is builders risk insurance? | A type of insurance that covers buildings and other structures while they are under construction.) |
| Who is it for? | Building owners, architects, engineers, contractors, and subcontractors. |
| Who buys it? | Depending on the construction contract, either the general contractor or property owner buys it. |
| What does it cover? | Buildings or structures under construction, including temporary storage buildings, fencing, scaffolding, retaining walls, etc. |
| Does it provide liability coverage? | No, it does not provide liability coverage or protection for the home's contents. |
| What does it protect against? | Fire, wind, theft, vandalism, vehicle collisions, and other accidents. |
| What else does it cover? | Construction materials stored off-site, cleanup costs, debris removal, pollutant cleanup, recertification fees, soft costs, etc. |
| How long does it last? | 3, 6, 9, or 12 months, but it can be renewed until the project finishes. |
| How much does it cost? | The cost can range from 1% to 4% of the total construction budget, with a basic policy starting at a minimum premium of $700 for 12 months. The cost also depends on the location and expected completion date. |
| Where can I get it? | Many major insurance companies sell home building insurance, including State Farm and Nationwide. |
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What You'll Learn
Understanding builders risk insurance
Understanding Builders' Risk Insurance
Builders' risk insurance, also known as course-of-construction insurance, is a common form of insurance that covers buildings and other structures while they are under construction. It is often required to obtain certain government construction contracts or participate in government loan programs. While it is not usually mandatory for privately owned residential construction projects, homeowners should consider the risks of forgoing this type of insurance.
Builders' risk insurance is designed to provide coverage for buildings and structures during the course of construction or renovation. It covers more than just the existing structure, including construction materials, temporary storage buildings, equipment, and lost sales income. It also provides liability protection against claims of bodily injury suffered by non-employees on the construction site.
The cost of builders' risk insurance is typically determined by the total estimated value of the completed building or structure and the expected date of completion of the project. Policies are usually written for 3, 6, or 12 months and can be extended if the project is not completed within the initial term. It's important to note that the premiums are fully earned when issued, so there will not be a refund if the project finishes early.
Builders' risk insurance does not cover everything. For example, it does not provide liability coverage for bodily injury or property damage caused by the contractor, as they should have their own general liability insurance policy. Additionally, most builders' risk policies exclude coverage for earthquakes, floods, acts of terrorism, employee theft, mechanical breakdowns, and workmanship issues.
It is crucial to carefully review your policy documents to understand what is and is not covered. Each insurance company handles builders' risk insurance differently, so it is essential to ask questions and seek clarification from your agent to ensure you obtain a policy that meets your specific needs.
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Why homeowners need it
Homeowners planning construction or renovation projects need to consider builders risk insurance, also known as course of construction insurance. This is because most homeowners' insurance policies do not cover incidents that occur while the property is being worked on.
Builders risk insurance covers buildings and other structures while they are under construction. This includes temporary storage buildings, fencing, scaffolding, retaining walls, and more. It also covers equipment breakdown and can help pay for the repair or replacement of damaged equipment. Additionally, it provides liability protection against claims of bodily injury suffered by non-employees on the construction site.
Homeowners should be aware that builders risk insurance does not provide liability coverage for bodily injury or property damage caused by the contractor. Contractors should have their own general liability insurance policy to cover these incidents. Builders risk insurance also does not cover damage caused by ordinary wear and tear, employee theft, mechanical breakdown, or design defects.
The cost of builders risk insurance depends on the size and scope of the construction project, the quality of the materials used, and the expected date of completion. It is important for homeowners to discuss coverage needs with an insurance professional to ensure adequate protection. Builders risk insurance can help provide peace of mind and financial protection during construction or renovation projects.
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What it covers
Builder's risk insurance, also known as course-of-construction insurance, is a common form of construction insurance that covers buildings and other structures while they are under construction. It is often required to win a government construction contract or participate in a government loan program.
Builder's risk insurance covers the property on construction sites and protects against damage or destruction by fire, wind, theft, vandalism, vehicle collisions, or other accidents. It also covers construction materials, including those stored off-site and in transit, as well as cleanup costs like debris removal and pollutant cleanup. Additionally, it can cover equipment breakdown and repairs.
Builder's risk insurance does not provide liability coverage or protection for the home's contents, as there are typically no personal possessions at the construction site. It also does not cover workplace accidents, bodily injury, earthquakes, floods, acts of terrorism, war, employee theft, mechanical breakdowns, workmanship, fault design, or wear and tear.
It is important to note that builder's risk insurance is only in effect during construction. Anything that happens outside of this window will not be covered, and property owners should look to alternative insurance policies for protection.
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How much it costs
The cost of builder's risk insurance varies depending on several factors. Firstly, the cost is directly related to the total estimated value of the completed building or structure. A more expensive project poses a higher risk, so businesses typically pay more for insurance. For example, a high-rise building will require a much larger insurance policy compared to a smaller renovation project. The physical size (square footage) of the building is also considered when determining the cost of the insurance policy.
The expected date of completion of the project is another factor that influences the cost of builder's risk insurance. Policies are generally written for 9 to 12 months and are typically paid as a set amount for coverage rather than an ongoing premium. The type of project is also important, with new construction and remodelling including the existing structure being the most common types.
Most businesses pay between 1% and 5% of the total cost of the construction project for builder's risk insurance. For example, if your budget for a renovation project is $100,000, a builder's risk policy will typically cost you between $1,000 and $5,000. However, some sources state that builder's risk insurance costs between 1% and 4% of the budget.
It is important to note that builder's risk insurance does not provide liability coverage or protection for the home's contents, as there are typically no personal possessions at the construction site. Additionally, builder's risk policies often exclude coverage for events such as earthquakes, floods, acts of terrorism, war, employee theft, mechanical breakdowns, workmanship, fault design, and wear and tear.
Builder's risk insurance can usually be purchased from major insurance companies that sell home building insurance. It is recommended to shop around and compare quotes from multiple insurers to find the best policy for your needs.
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Where to buy it
If you're looking to buy builder's risk insurance, there are several options available to you. Many major insurance companies sell this type of insurance, and you can often find it under different names, such as construction loan insurance, home building insurance, or renovation insurance.
One option is to go through an insurance broker, who can help you find the best policy for your needs and save you money. Websites like NerdWallet offer free quotes from 30+ insurers and instant access to your Certificate of Insurance (COI) through their partner, Coverdash. Similarly, buildersrisk.net offers the top 5 builders risk policies that write 95% of all builders risk insurance in the US, and their experienced agents can help you get the best prices.
You can also go directly to an insurance provider to purchase a policy. State Farm, for example, has been helping small business owners manage risk and protect their assets since 1935. They offer a wide variety of coverage options that can be tailored to your unique business needs.
Alternatively, you may want to consider purchasing builder's risk insurance through your builder or contractor. In some cases, the cost of insurance is built into the construction cost, and the builder will pay for it and pass the cost onto you. In other cases, the builder may recommend a policy that you must purchase and pay for yourself.
Remember to get covered before the project begins, as insurance companies will only cover costs for work/property built after the coverage start date.
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Frequently asked questions
Builders risk insurance, also known as course of construction insurance, is a form of insurance that covers buildings and other structures while they are under construction. It is designed to protect policyholders from financial setbacks in the case of loss or damage.
Builders risk insurance is often required to win a government construction contract or participate in a government loan program. It is also necessary for anyone with a financial interest in a property that is being built or renovated, including building owners, architects, engineers, contractors, and subcontractors.
Many major insurance companies sell builders risk insurance, including State Farm and Nationwide. You can also get quotes from insurance providers such as NerdWallet and BuildersRisk.net.
