Property Replacement Insurance for Contractors

Property replacement insurance is one of the top benefits of Builder’s Risk insurance. The contractor, sub-contractor, building owner, or developer is protected from financial loss if the structure is damaged and must be replaced. It could be a building that is under construction or being renovated.

However, Builder’s Risk is not for all property damage. Specifically, it is not for third-party claims.

Third-party property damage claims

There is no one policy that covers all the risks faced by a contractor. Let’s take a look at an example. Let’s say your employees damage a parked vehicle. They do this in the course of their work.  Your company will be liable. The owner of the vehicle will sue your company for the cost of replacing or repairing their vehicle.

These policies provide coverage for liability claims from a third-party.

• Contractor General Liability
• Commercial Auto
• Professional Liability (Errors and Omissions)
• Workers Compensation

But, Builder’s Risk insurance isn’t on this list. This is because it does not provide coverage for third-party liability claims. However, it does offer other very valuable benefits.

So, not all policies give the same kind of coverage. This makes sense, right? So what other kind of property damage is there?

Course of Construction coverage

For instance, the building you are constructing is damaged by fire. You can’t sue yourself for damages like a third-party would. However, this does not mean that your project must remain vulnerable. You can still pass the risk of financial loss onto your insurer.

Your own investment in the project can be protected with Builder’s Risk. This policy is also known as Course of Construction insurance. It steps up if the building under construction is damaged. The insured (you) will receive the replacement cost coverage equal to the value of the property lost.  So you can see why it is so important to value the property correctly before buying the policy.

Replace your property

How much must be spent to reconstruct the damaged property?  You have to correctly insure the full value of the property, otherwise you may not get full coverage in case of loss.

In fact, if you are underinsured, your claim could be denied. In another scenario, the insurer could only pay a portion of the claim.  Either way, this will have serious financial consequences for your business.

When is it needed?

Builder’s Risk insurance is recommended for:

• renovation,
• rebuilding, or
• building from scratch projects.

It is only valid for the period of construction.  This is why it is also known as Course of Construction insurance. The best Builder’s Risk insurance to buy typically costs between 1-4% of the project cost.

Difference between replacement cost and market value

1. Replacement cost

Replacement cost can be understood as the full cost of repairing or replacing the entire property to reflect the way it was prior to the loss.

When there is a loss or damage to the property, the insurance company will:

• provide the funds for the cost of replacing the lost or damaged items
• or the cost of rebuilding based on the original size or structure.

This is subject to the limits of the policy.

2. Market value

Market value, on the other hand, reflects the sum that a buyer would have to pay to purchase the property (building and the land) in its present state.

This is different from replacement costs where the material, and labor costs are important factors. Market value is determined by

• trends,
• proximity to schools, hospitals, parks and
• local crime figures.

If a property is insured under its replacement costs, coverage includes associated systems, fixtures and finishes. These could be substantially more than the market value of the property.

Best Builder’s Risk Insurance to buy

So, which is the best Builder’s Risk insurance to buy? Don’t just go by the price. Check that you are paying for the correct coverage. The policy that has valued the project correctly will offer the best protection.

To find out more about the best Builder’s Risk to buy for your company, contact Builders Risk at (877) 960-0221.