Construction projects involve complex activities, which is why, if problems arise before the project is completed, things can become difficult to manage.
Imagine that you are in a situation where the project is almost completed, and the construction is affected by irreparable damages, having to start everything from the beginning. The cost could be huge. You can protect yourself against these risks by purchasing builders’ risk insurance.
This insurance offers protection against the risks to which the ongoing construction works are exposed. For example, if the works in progress are affected by fire, floods, storms, acts of vandalism, or theft, the protection offered will help you cover the costs of repairs or restoration of the works.
How much does builders’ risk insurance cost?
The cost of builders’ risk insurance may vary from one project to another and depends on various factors like the type of construction, the type of project, the variety of risk factors, and the location.
There are different types of builders’ risk insurance such as:
- basic, which is the essential coverage to meet customer demands; its costs start at around $40 per month;
- standard, that protects your business equipment and comes at the cost of more than $50 per month;
- pro, which offers protection against employment-related problems and costs more than $50 per month.
Your monthly premium may be even higher than the prices we presented above. It depends on your certain needs.
Builders Risk Insurance Overview
The builder’s risk insurance policy is specially made to offer protection to structures and buildings which are under renovation, construction, or development. Policies can provide coverage for construction signs, construction materials, temporary structures, labor costs, and even trees or plants.
Policies cover the costs for the damages up to the specified coverage limit. This coverage limit represents the total cost of the finished building, including materials and labor costs, but not the value of the land.
In general, the terms would be anywhere between three months and one year. However, if the project is not completed on time, it can be extended.
What does builders’ risk insurance cover?
Builders risk insurance provides coverage for damages and losses resulting from:
Also, these policies may protect builders in the situation of lost business income, bodily injury, personal injury, damage to third-party property, and other issues that builders may have during the construction process.
Builders should read their policy with a lot of attention to understand which risks are covered and which are not. For instance, most builders’ risk insurance policies will not cover:
- water damage;
- employee theft;
- weather damage to property left open;
Types of insurance builders may need
Builders should think about purchasing one or more of the next policies in addition to builders’ risk insurance, so they can prevent lawsuits for improper construction, illness, injury, or other problems.
- Professional liability: It offers protection in case of ineffective builders’ advice which leads to the property and/or financial damage.
- General liability: It covers the legal costs in case a third party tries to make you responsible for property damage or personal injury.
- Business auto: when an auto accident happens due to your negligence, the business auto policy covers the costs of fixing your vehicle or a third party’s vehicle.
- Inland marine: this policy offers coverage in case your equipment is lost or damaged during transport. This would include drivers during transportation from and to a building site, equipment, passengers, materials, and tools.
- Commercial property: this policy covers the costs of replacing the equipment, materials, and building in case these are destroyed by fire, theft, or vandalism.
Tips for purchasing
It may be pretty difficult to find the right builders’ risk insurance policy because there is a large number of policy providers on the market.
Here are some tips to help you to find the policy that is right for you:
Review what is not covered by each policy
It is important to understand what is not covered by your policy and to know what extra policies you may need to purchase.
Know what coverage you need
When talking about the builders’ risk insurance policy coverage, every project has its own specific needs. You can avoid paying extra for unnecessary coverage if you know exactly what you need before shopping. Also, in order to choose the right term length, you should know how long the project would take.
Make sure to compare prices in order to find the best possible rates, because the price of builders’ risk insurance may vary from one lender to another.
Builders’ risk insurance FAQs
What risks do builders face?
There are some major risks that builders may face such as ineffective advice from consultants, weather damage, personal injury, vandalism, damage to materials during transport, theft, and others.
Without insurance, builders are vulnerable to financial and legal repercussions due to these risks.
What is a wrap-up insurance policy?
The wrap-up policy is that type of insurance that protects both the subcontractors and contractors who work on a construction project.
A Wrap-up insurance policy is designed for projects worth more than $10 million.
Do I need builders’ risk insurance?
Definitely yes, if you are a builder because you have to protect yourself from risks that may result in a lawsuit. Without such insurance, you can lose your business, reputation, and assets.
Although construction works differ from one project to another, they are exposed to similar threats represented by the risks of theft, loss, or damage that can affect the machines, equipment, and materials that you own and use. These are not only expensive to purchase or replace, but they are also essential for running your business. Without them, you would not be able to honor the contractual obligations regarding the completion of the works on time, which could generate additional financial costs.
Risks are many and varied, including fires, floods, storms, malicious damage, vandalism, and theft. Builders’ risk insurance is meant to protect you against all these risks, at the same time covering your civil liability towards third parties. Weigh the risks carefully and consider whether taking out insurance for construction works could be beneficial for your business.