What is Builder’s Risk Insurance?
Builder’s Risk Insurance, which is also referred to as Course of Construction Insurance, is a type of property insurance that protects buildings while they are under construction.
Contractor Builder’s Risk coverage is complex because there are no standard policy forms since every construction project is different. As a result, this type of insurance is often misunderstood.
Contractors are responsible for assuring projects are completed. To reach this goal, you must have coverage for buildings that are still under construction, new structures, or the renovation of existing ones. Also, the coverage typically continues until the building project is complete and is signed off on by the owner.
In this article, we will go over some of Builders Risk Insurance’s most frequent questions and what is excluded from this coverage.
What does Builder’s Risk Insurance Cover?
Builder’s Risk Insurance covers many different elements of unfinished structures. One of the most common uses of these policies is for protection against property damage. According to the Hartford Insurance company, contractors with this coverage also have protection from:
- Fires & explosions.
- Natural disasters.
Another benefit of Builder’s Risk Insurance is its coverage of materials used on construction projects. Materials, equipment, and building supplies are all covered for the same damages as the building itself.
Does Builder’s Risk Insurance Only Cover Construction Losses?
No! Your Builder’s Risk Insurance policy also provides coverage for losses resulting from delays caused by property damage. Some examples of this coverage include loss of sales or income from rentals, additional interest on loans, and taxes.
As we mentioned, each construction project is unique, so Builder’s Risk Insurance is easily customizable according to specific needs. For example, if your project requires scaffolding, you can add coverage for this to your Builder’s Risk Insurance. Some other common additions to this coverage are for temporary structures, debris removal in the case of a loss, and pollutant cleanup.
You should also investigate the “ensuring loss provision” on your policy. The Balance Small Business blog defines an ensuring loss as “a loss caused by a covered peril that occurs as a consequence of a loss caused by an excluded peril.” For example, these policies typically do not cover damages from subcontractors on the building, but damages to other property caused by a subcontractor may have coverage.
What is Not Included in my Builder’s Risk Policy?
There are some exclusions that contractors need to look out for with Builder’s Risk Insurance. Some of the most common exclusions are earthquakes, floods, and high winds in areas where these are common. Although most policies exclude these risks, sometimes you can add an extension to your policy to get these risks covered.
Other exclusions to Builder’s Risk Insurance are:
- Terrorism & war acts.
- Normal wear and tear.
- Employee theft.
- Workmanship problems.
- Issues in planning.
- Design flaws.
- Rust and corrosion.
- Mechanical failure.
Also, note that Builder’s Risk differs between new construction and renovation. Builder’s Risk Insurance covers the building from the groundbreaking to completion of a project, for a renovation project, it only covers the building during the restoration period.
Insurance Business Magazine interviewed Laura Bates, corporate vice president at Atain Insurance Companies, about how insurance can be tailored to safeguard the cost of the renovations. In her words: “If a specific Builder’s Risk policy is not acquired, there may be a gap in coverage for either the existing building or the renovation portion. This is why it is essential to ensure the correct coverage forms are included. Additionally, the policy should feature a vacancy permit, which removes the vacancy clause that would exclude coverage if the property were vacant.”
What to do Before Purchasing Coverage
Before you purchase your Builder’s Risk Insurance policy make sure you have gone over all the exclusions and what is included in your policy. There is no fixed price for these policies, so it is important to make sure you tailor your policy to your specific needs.
You also need to make sure you ask yourself the question “Does my Builder’s Risk Insurance start right away?” You need to know when your policy goes into effect and when it ends. It is important to make sure these dates align with your project, so coverage is available for its entire duration.
The most important advice we can give to you before purchasing your Builder’s Risk Insurance policy is to look at your other policies and find where you need more coverage. Since this coverage is easily customizable, you can use it to fill in the gaps that your other policies do not cover.
How to Make Sure Your Coverage is in Place
This can be a challenging task, but with the right tool, it is simple! Using a Risk Management Software like SmartCompliance allows contractors to upload certificates of insurance (COIs) and track coverage to see where compliance is met and where there are gaps. Doing this will help you decide how to create your Builder’s Risk policy.
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