Renovating your home or workspace? Building your dream home or business premise? Whatever type of building project you’re undertaking as an owner or contractor, you must protect your once-in-a-lifetime task with a builder’s risk insurance policy.
Luckily, we’re giving you the ultimate guide to this project-specific coverage. So, by the end, you’ll know exactly how to acquire it to keep your home/office safe while under construction.
What Is Builder’s Risk Insurance?
Builder’s risk insurance, otherwise known as course of construction insurance or COC, protects liability and your building during a construction project. Since property claims are so expensive, you’ll likely need to purchase a policy as a home or business owner at some point.
Property owners tend to buy builder’s risk insurance coverage in these scenarios:
- When planning to build a new home.
- When planning to build a new commercial property.
- When adding a second story or other extensions to an existing property.
- When undertaking major property renovations.
The Types of Builder’s Risk Insurance Coverage
Keep in mind that this type of insurance is relevant to not just homeowners or commercial property owners, but builders and contractors too.
The reasons behind acquiring course of construction coverage differ depending on which category you fall into, as you’ll soon discover:
- Coverage for homeowners — Regular home insurance policies won’t protect your dwelling while it’s under construction. If damages happen without a builder’s risk insurance policy in place, your insurer will reject your claim, meaning you’d be personally responsible for the associated costs.
- Coverage for workers — Damage to structures, delays, and interruptions threaten your project. Builder’s risk insurance coverage ensures protection for equipment, labour, materials, and delay costs. The policy applies to you and other trade professionals involved in the project.
The Types of Projects Requiring Builder’s Risk Insurance
Plenty of projects necessitate a builder’s risk insurance policy, including but not limited to the below:
- Building custom homes
- Commercial new builds
- Residential new builds
- Adding a second story or an extension to your current residential or commercial building
- Road building
- Commercial renovations
- Residential renovations
- Pipelines and Utilities
- Civil and municipal contracts
- Tenants improvement projects
Builder’s Risk Insurance Claims Examples
Peruse the examples of builder’s risk insurance claims below to get a better idea of how much money you could save in the long run.
Example One: Fire Damage Claim
You are storing materials for a big commercial project in your warehouse situated a few kilometers from the worksite. A fire starts and destroys everything inside your warehouse, including the materials needed for the project.
In this situation, your builder’s risk insurance policy provides the money you need to replace the materials. Your commercial property insurance (more on this later) gives you the money to restore your warehouse to its former glory.
Overall, the fire damage cost $375,000 in restoration and replacement. Without the two insurance policies, you would’ve needed to fund it yourself, causing catastrophic financial hardship.
Example Two: Water Damage Claim
As construction continues on your condo building, a contractor notices the insufficient caulking on the balconies allowed cold air to enter and freeze the pipes. It ended up causing sufficient water damage in some areas.
The total cost to repair the problem is $88,000. Your builder’s risk insurance covers the full price, allowing your building to benefit from new pipes and effective balcony sealant without breaking the bank.
Example Three: Property Damage Due to Vandalism Claim
You and your employees are tasked with restoring a historic home so the owners can turn it into a museum. You finish for the day, and everybody goes home. That night, vandals broke into the house and proceeded to cause extensive damage to the building.
Since you took out builder’s risk insurance, the costs of repairing the damage and hiring more contractors to ensure the project finishes on time are covered.
Example Four: Bridge Building Claim
You’re constructing a new concrete and steel girder bridge. The girder assembly slides off the supports and damages the end of the beams. The damaged beams were removed, and two mobile cranes brought new ones to the site.
After analysis, the fault of the loss is down to the improperly designed installation process. The builder’s risk insurance coverage taken out before the project began paid for the new beams and transportation of the materials.
Example Five: Theft of Copper Claim
A building site you work on has suffered material loss as a result of theft. They broke into the facility at night and proceeded to steal a large number of copper pipes and wiring, some of which the electrician had already installed.
Without builder’s risk insurance coverage, the cost to replace the missing materials and re-hire the electrical subcontractor would’ve derailed the project. Thankfully, the policy provides the money to handle the issue swiftly.
What Does Builder’s Risk Insurance Cover?
Builder’s risk insurance covers the construction materials on the site, building, and liability if physical loss or damage occurs due to an insured event like vandalism, theft, or fire. Coverage usually begins at the start of the project and ends as soon as the project finishes.
Specifically, builder’s risk insurance coverage protects from these common perils:
- Fire damage
- Smoke damage
- Interruption and delays
- Theft and vandalism
- Property damage
What Doesn’t Builder’s Risk Insurance Cover?
No builder’s risk insurance coverage protects the building once the project completes — there are different insurance types available for that. However, it also doesn’t usually cover damages caused by the following:
- Water damage (from flooding, for example)
- Mechanical breakdowns
- Contractual penalties and fees
- Employee theft
- Voluntary leave of the parties included under the policy’s umbrella
- Faulty design
- Insufficient or incorrect planning
- Faulty materials
- Government activities, including war
- Other specified exclusions
When it comes to renovations, you may need to purchase a partial occupancy endorsement (i.e., essentially a permit). Otherwise, you could fall prey to the partial occupancy exclusion present in many builder’s risk insurance policies that negates coverage if the property is inhabited while construction occurs.
Of course, every policy is different. Talking to one of our experts helps us connect you with a broker who can provide the correct level of builder’s risk insurance coverage for you and your project.
Who Needs Builder’s Risk Insurance Coverage?
Any business or individual looking to significantly renovate or build a new home or office space needs to protect themselves and their construction project with a builder’s risk insurance policy.
Typically, it’s the property owner’s responsibility to pay for the coverage. However, when finalizing the project details, you must clearly identify who is responsible for buying the policy to make sure everyone involved is covered.
The most common groups of people who require builder’s risk insurance to pursue projects include (but are not limited to) the following:
- Renovation contractors
- Real estate developers
- Construction companies
- Business owners
- Residential homeowners
- General contractors
How Much Does Builder’s Risk Insurance Coverage Cost?
Most builder’s risk insurance policies end up costing between 1% and 4% of the total construction amount. So, for a building that costs $100,000 to build, you should expect to spend between $1,000 and $4,000 for the coverage.
It might sound expensive, but it could potentially save you hundreds of thousands of dollars if unforeseen damages or delays ramp up the project price.
The easiest way to determine how much your policy may cost, you should request an online quote from us at LiabilityCover. With that said, you should also be aware of a few factors that manipulate the total builder’s risk insurance cost:
- The expected duration of construction — This metric is the most influential. The shorter your project, the smaller the window for accidents. Plus, shorter projects are exposed to fewer risks anyway, especially where thefts and other crimes are concerned. Longer projects often experience increased downtime, leaving the site vacant for extra losses.
- The location of the project — No matter what type of insurance you need, the rates vary depending on the area. Some site locations are more prone to hailstorms and fires, while others are more likely to experience vandalism and thefts. Coverage premiums, therefore, must take these factors into account.
- The quality of materials — Using top-quality materials for your project can bump up the price of the construction and builder’s risk insurance premium.
- A brand-new construction endeavour — If you’re acquiring builder’s risk insurance for a brand-new construction project, coverage must extend to a plethora of tasks. Jobs like site preparation, laying electrical lines, and excavation massively increase costs. Every step in the construction process adds risk, boosting the insurance cost.
- Renovations and remodelling — For renovation projects, builder’s risk insurance prices increase if the existing structure needs extra protection during the work.
- The cost of the project (hard costs, soft costs, or financial costs) — Some builder’s risk insurance coverage doesn’t protect all parts of the project. You must decide whether you want hard costs, soft costs, or financial loss coverage when taking out the policy. As you can imagine, each one comes with a different price tag (hard cost coverage is the most expensive, financial loss coverage is the cheapest). The details of each are as follows:
- Hard costs — Coverage for the structure, equipment, materials, fixtures, and other components.
- Soft costs — Coverage for legal fees and engineering losses.
- Financial loss — Coverage for the monetary losses that could occur from the loss of using the building itself.
- Your insurance claims history — If you have a long list of previous insurance claims, insurers may see you as a larger risk than others without a claims history. Your premiums will likely increase in this case.
How Much Builder’s Risk Insurance Coverage Do You Need?
Ideally, you should take out builder’s risk insurance coverage that reflects the total value of the structure. That means you need to find the sum of the following:
- Labour costs
- Other associated fees
If you’re the project owner, your budget is a helpful metric to look at when deciphering your policy’s coverage limit.
How to Get Builder’s Risk Insurance Coverage
With us, it’s easy to access the insurance coverage you need. Our database contains a multitude of high-quality insurance providers specializing in all sorts of industries.
Follow the four steps below to get your hands on the coverage you require for your next big construction project:
- Complete our simple request form and submit it.
- Our expert team reviews your insurance needs.
- We connect you with a licensed insurance agency or brokerage that has years of experience providing coverage to those in your profession or position.
- The broker or agent we assign contacts you to guide you through the insurance acquisition process.
Is Builder’s Risk Insurance Coverage On Its Own Enough?
If you’re a business owner acquiring builder’s risk insurance to cover a project, it’s unlikely that a single policy is enough to protect your entire setup. Depending on the type of company you own, you should think about acquiring other coverage, like:
We briefly touched on the importance of commercial property insurance earlier in the fire damage claim example. It covers your business space (including warehouses) for physical loss or damage to the property itself and the contents following vandalism, fire, thefts, or other external disasters.
Regular commercial property insurance coverage provides financial protection in the areas listed below:
- Tenant improvements — If you’re a tenant and have made improvements that cannot be removed, you get financial protection in case of damage under this section of the policy. Coverage extends to paint, lighting, and carpeting or other types of flooring.
- Inventory and equipment — The policy pays for the repair or replacement of inventory (merchandise, products, materials, etc.) and your company equipment in case of damage, theft, or fire. It also includes food items.
- Building coverage — If the building itself (regardless of whether you own or rent it) is damaged due to unexpected disasters like floods or fires, the policy pays for the repairs.
- Fixtures and furnishings — Coverage replaces or funds the repair of fixtures and furnishings that were damaged or lost in an external disaster.
- Electronics — Any electronics damaged or stolen in and around your business site can be funded by the policy.
As you can see, commercial property insurance coverage is rather broad. However, bear in mind that it won’t cover you in the following events:
- Cash, precious metals, or securities (crime insurance is necessary here, see the section below)
- Wear and tear to your equipment over time (i.e., due to regular use)
- Properties left unoccupied for 30 days or more
- The unexplainable loss of an item
Commercial Crime Insurance
Businesses with employees are susceptible to employee theft, forgery, dishonesty, and other criminal acts, and therefore, should consider protecting themselves with commercial crime insurance.
Generally, coverage extends to the loss of securities, money, precious metals, and other assets due to:
- The loss of employee benefit plan assets
- A dishonest employee who was sent to work at a client’s premises
- Employee theft
- Forgery, including the fraudulent transfer of funds and computer fraud
- Non-payment of money orders
- Corporate credit card forgery
- Money laundering and counterfeit paper currency
For businesses requiring further protection from cyber-related attacks and crimes like website takeovers, taking data hostage, or stealing sensitive client information, you should obtain cyber liability insurance. It covers the costs related to cybercrime and customer data or digital systems.
Coverage is important if:
- You provide hardware or software services to your customers.
- You store information in the cloud or another type of digital database.
- You store customer or patient data. It includes credit card and medical information.
- You use a point-of-sale system.
It does not include coverage for damage or loss because of:
- One of your employees hacking or damaging your data or systems
- A power failure or surge causing damage to your data or systems (acquire equipment breakdown insurance to provide coverage for damage caused by internal mechanical faults)
- Intellectual property or patent infringement (specific separate covers exist to cover this)
No matter the size or type of business, you must take out commercial general liability insurance if you wish to stay afloat during liability lawsuits and protect your company.
CGL insurance provides financial coverage for lawsuits and claims alleging third-party property damage or bodily injury due to your business’ negligence or unforeseen incidents. If sued, the policy covers legal defence costs and compensatory damages, even if you don’t win the case.
Specifically, CGL insurance offers coverage in these areas:
- Tenant’s legal liability — Coverage to repair or replace somebody’s property you occupy or rent if damaged due to your business operations or unforeseen accident.
- Bodily injury liability — It covers injuries or damage to third-party property caused by your business operations.
- Product liability — Coverage for bodily injury or property damage caused to a third party by a product you supply or sell.
- Personal and advertising injury liability — It covers accusations of slander, false advertising, defamation, and libel.
Why Choose LiabilityCover?
We work with several high-quality licensed and registered insurers and brokers who have experience in providing all kinds of insurance types to various industries. For quick turnaround times and competitive quotes, our team at LiabilityCover is the one for you.
Contact us through email or give us a call directly if you want more information before requesting a quote. One of our dedicated team members is more than happy to talk you through the details and soothe any concerns.
We make insurance simple. So, if you’re tired of finding meaningless quotes with confusing terms, let us do the hard work for you. Your insurance conundrum will be over before you know it.
Frequently Asked Questions
Who Buys Builder’s Risk Insurance Coverage?
Anybody involved in the development of a construction project can purchase builder’s risk insurance coverage. Generally, the property owner or lead tradesperson of the project buys the policy, but this must be decided in the negotiations and subsequent contracts.
What Should You Watch Out For When Purchasing Builder’s Risk Insurance Coverage?
Regardless of the type of insurance you’re purchasing, there are a few things to keep in mind. When it comes to buying builder’s risk insurance, consider the following clauses:
- The separation of insureds clause — Builder’s risk insurance covers a plethora of parties, including the project owner, subcontractors, and the general contract. However, sometimes, they don’t separate the insureds. What does that mean? Well, if one insured party violates a condition or warranty within the policy, it impacts every insured party. To be on the safe side, ensure your policy includes a separation clause.
- The other insurance clause — The majority of builder’s risk insurance policies include a clause stating that if any other insurance policy applies to the project, the risk insurance coverage is excess. To be sure that the builder’s risk insurance coverage is primary, request an endorsement that confirms it for the certainty of the contract.
Do You Need a Builder’s Risk Policy If You Have Contractors Insurance?
Yes, you still require a builder’s risk insurance policy if you have contractors insurance. Why? Because the latter doesn’t cover buildings undergoing construction. Thus, you need builder’s risk insurance coverage to protect the building and liability during the project.
How Long Does Builder’s Risk Insurance Coverage Last?
Builder’s risk insurance policies run for the expected duration of the project. Depending on your insurer and scope of development, the term could be for three, six, or 12 months.
If the project isn’t complete within the timeframe, you can typically extend the policy. You can expect one extension before insurers require you to re-apply for coverage.
What’s The Difference Between Builder’s Risk Insurance and Home Insurance?
Standard home insurance policies do not cover your residential building while it’s under construction. Therefore, you should take out a builder’s risk insurance policy to protect your dwelling during construction or renovation.
What’s The Difference Between Builder’s Risk Insurance and Commercial Property Insurance?
Commercial property insurance coverage protects your workplace against several common perils and losses while it’s not under construction. However, builder’s risk insurance is short-term coverage for when your business property is under construction.