Builders Risk Insurance Basics

Oct. 4, 2021

Builders’ Risk is an insurance policy that provides financial protection for business owners in construction when something happens to their job site while it’s under construction or renovation. The insurance coverage usually extends to include fire, vandalism, theft, and extreme weather. Typically, you should expect to pay the insurance company somewhere between one and four percent of the total construction costs for this coverage. However, the cost of construction will vary depending on the needs of your business, the location, and the project type.

Today, we’re going to take a look at how builders’ risk insurance coverage works by looking into the basics of how it covers you and how the cost of coverage is determined. From there, you should be better off for determining what is best for you and what coverage options you’ll be looking at for your next job site.

How Builders Risk Coverage Work

The builder in “builders risk” is talking about the insured contractor, subcontractor, or general contractor. It’s the person performing the work for the property owner. The coverage should also extend to the property owner, the lender, and all other people with an insurable interest. In general, the property owner or contractor will purchase this insurance, and they will list all covered parties as named insureds.

A builders risk policy will protect the contractor from mishap during the course of the construction project. Unlike property insurance, builders risk insurance policy is intended to be a temporary insurance policy for new constructions or remodels while they are being worked on as part of a job site.

What’s Covered?

The coverage generally lasts three, six, or twelve months and can cover all items that could be damaged or stolen during the course of construction, including materials, fixtures, equipment, and the structure itself. However, soft costs will be harder to ensure as you will generally need to prove something happens. Additionally, employee theft and extreme acts of nature are often excluded.

What Do You Need to Know?

If you’re looking to obtain builders risk, then you should work to know a few details about your contract so that you get the best deal and are the most protected. First, you should always keep risk management in mind while determining how much insurance you need. Next, take a look at the address, size, and general location of the project to see how it might affect your rate.

Following that, you’ll want to look at the project size in dollars as that can tell you a lot about what you might end up paying. Finally, you’ll want to look at the policy term, your credit and compliance history, and the protection that you are leaving on site as these will dramatically affect what you will pay at the end of the day.

How Do You Determine the Cost?

The higher the quality of the construction project you are working on, the lower the risk that your site faces. Anytime that your site faces a lower risk, your premium will go down. If you’ve claimed a physical loss on insurance many times in the past, you are a higher risk client and thus will be charged more. Likewise, if your temporary structures like safety fences are not up to standard, the higher risk will again raise the cost of the insurance. Overall, you should suspect that between one and four percent of the total cost of the project be the cost of your insurance.