Builders Risk Insurance
Rocco Abate, Capstone Brokerage Account Manager, September 24, 2015
Builders risk insurance policies are an important part of the construction industry. If your business is involved in new construction or a remodel of a building you should consider a Builders Risk Policy to protect your investment in the project. A builder’s risk policy will protect a person’s or organization’s insurable interest in materials, equipment, and fixtures that are being used to construct or remodel a structure. The protection is added security in the event that the materials sustain physical loss from a covered cause.
The reason for a builders risk policy is to basically cover construction materials. A builder’s risk policy can also cover temporary structures, scaffolding, signs, and even trees. So many different businesses will find that it is beneficial to have the policy in place. Even a landscaping company should consider it if they have a larger scale project that requires a large purchase of materials.
As with most insurance policies there are two different methods for calculating loss; actual cash value and replacement cost. It is important to discuss with your insurance broker what coverage you feel is needed to ensure a loss would not create the business to have financial hardship.
What will a builders risk policy cover?
It can cover several different items and loss depending on how the policy is structured. There are 4 basic areas of coverage.
• Property Damage: this would include construction material, machinery, equipment and temporary structures.
• Theft: it is possible to have a builder’s risk policy that will cover theft of items. The job will typically have to be gated to help lower the risk of theft.
• Labor Costs/Profits: When labor costs and profits are included in the builder risk policy it can replace labor costs, income and expenses.
• Perils of Nature and man-made disasters: This would include hurricanes, fires, storms, and broken water mains.
• Other damage that is caused by negligent workmanship and flawed material or structure design.
• There is also an option to add a line item that would cover “soft costs” such as interest on loans, permit fees etc.
What are Builders Risk Insurance Exclusions?
The most basic exclusion is injury or accidents on the jobsite as well as liability risks. Some policies will not cover certain acts of nature like a flood or earthquake. However it is possible to purchase separate coverage for flood and earthquakes.
How long should the policy be in place?
A typical builder’s risk insurance policy is short term meaning that it is a one time policy that will remain in effect for the specific period of time. The length of the policy can range depending on the estimated date of completion. In some cases the policy may only be in place for 3 months, however, it can stay in place as long as the structure is under construction. The coverage will typically end when the building is completed or occupied.
How is the premium calculated?
The basic rule of thumb when it comes to builders risk insurance is the cost is typically 1-3 percent of the total construction budget. Of course there are other factors such as the businesses loss history, the insurance company, and what is being covered. Having an educated insurance broker will help a business to determine what coverage should be considered. A broker can also help to “shop” the companies need to several carriers to find the best price and coverage.
How much coverage is needed?
Builders Risk insurance, is also known as “Course of Construction,” insurance. Since the point of the insurance is to cover property under going construction, as well as all of the materials and equipment used in the project. Businesses should consider purchasing coverage with limits for 100 percent of the anticipated construction costs. This will protect the business fully in the event of a loss.
Who needs a builders risk policy?
The construction industry in general especially contractors, builders and developers take on big risks everyday. Most of the risks are necessary due to the nature of the industry. Creating real structures from ideas and plans isn’t always simple. Smart developers, builders, and contractors insure their buildings that are under construction with appropriate builders risk insurance policies.
If you are involved in construction or remodeling in anyway it is a great idea to ask your insurance broker or advisor about options for builders risk coverage.
