There are different types of Contractors Insurance designed to protect property owners, project developers, and contractors against risks associated with a construction project. In many instances, property owners require contractors to have certain coverages to be awarded contracts. Builder’s Risk is a type of Contractors Insurance which we will be discussing in detail in this 3-part series.
In part 1, we will define Builder’s Risk Insurance, discuss what the policy covers and excludes, and look into how much cover you need.
Builder’s Risk Insurance, also known as Course of Construction (COC) insurance, is coverage designed to protect buildings and structures under construction or renovation. More specifically, the foundations, building materials, construction equipment, fixtures, temporary structures such as scaffolding, and labor costs. You can, however, purchase coverage extensions for certain situations such as debris removal or protection of property in transit.
Most Builder’s Risk Insurance policies cover property damages caused by fire, vandalism, theft, explosion, and non-severe weather events like rain.
Many Contractors Insurance policies do not protect against wind, hail, earthquake, and flood in coastal states. However, if your project’s location is highly vulnerable to these risks, you can purchase additional coverage or buy separate insurance policies for wind, earthquake, and flood.
It’s important to note that losses caused by such natural disasters are usually subject to a deductible. A deductible is an agreed-upon amount you pay out of pocket in an insurance claim before your insurer pays you. Deductibles can either be a fixed dollar amount or a percentage of your policy limit. In high-risk coastal areas, a percentage deductible may be mandatory.
It’s important to note, this type of Contractors Insurance does not provide liability protection in case of property damage or bodily injury to third parties. For this, you will need to purchase General Liability Insurance.
The coverage limit must accurately reflect the total value of the completed project, i.e., all labor and material costs, excluding land value. Remember, this is the replacement cost for your building/structure, not its market value. Replacement cost is the amount you would pay to rebuild your project in the same lot, to the same quality, and using the same materials at the current market price.
Your Builder’s Risk Contractor Insurance policy pays damages up to the coverage limit. It is, therefore, crucial to come up with an estimate that is as accurate as possible. Your construction budget is the best source for determining how much insurance you need for your project. Additionally, you should purchase a policy when your project is less than 30% complete.
To determine which coverage is applicable for your business call BuildersRisk.net at 887 960 0221. Our agents are waiting to help.