Builder’s Risk Insurance: What it Covers and Costs

Construction of a building is not an easy financial project. The cost of the materials, labor, equipment and professional fees when summed up can account for thousands if not millions of dollars.

While there are insurance programs meant to protect your physical assets, is adding another policy during the course of building construction worth it?

Builder’s Risk Insurance or Course of Construction Insurance is a particular type of policy that covers both residential and commercial structures while they are under construction, being renovated or remodeled.

It protects the owners and contractors from destructive events that might result in huge financial losses.

It covers damages due to fire, vandalism, theft and other undesirable accidents. The primary purpose of this insurance coverage is to offer financial assistance against building or structure repair and replacement expenses as a result of disastrous circumstances.

Depending on the limit, Builder’s Risk Insurance can cover the whole structure, building materials, supplies and other essential components needed for construction. Usually, the Course of Construction Insurance is paid by the building owner or contractor.

While some might see this as an additional cost, it gives peace of mind, knowing that funds would be available should unwanted situations happen.

Unless you have a never-ending source of funds, every building owner or contractor needs to seriously consider getting a builder’s risk policy.

This way, you are assured that if anything happens during building construction, you have the funds available at hand to cover up repairs and damages caused by the incident.

Builder’s Risk Insurance can be acquired by a number of parties. It can be purchased as a sole discretion of the building owner, general contractor, project manager or site engineer. This can be specified in the construction contract as “named insureds” or “unnamed insureds.”

Both named and unnamed insureds are protected from legal charges, as well as paying up for the incurred losses.

Most of the time, this insurance policy is obtained by the landowner. But others would require every contractor to have it available especially when bidding for valuable projects. Though, note that not all providers grant Builder’s Risk Insurance to all contractors.

Insurance companies often require builders to have a minimum amount of experience, generally 2-3 years, before they can avail of this policy.

Additionally, it should be purchased when the construction is less than 30% complete and usually ends 90 days after project completion or when the owner takes possession.

Your premium will depend on the type of coverage and exclusions from the policy. Generally, the rate of Builder’s Risk Insurance is 1-4% of the construction cost.

You may pay an average of $200 monthly for small construction, but this can go up to a $2,000 average monthly premium for bigger projects. It is best to discuss rates with your broker or insurance agent since the cost will depend on the value of the covered property.

Aside from insurance cost, another important thing to note is the coverage limit of the policy. While Course of Construction Insurance will help pay for acquired damages up to your coverage limit, this, however, should be accurately declared and calculated.

One way to ensure precise calculation is by reviewing your construction budget.

The total completed value of the building should include materials and labor costs, excluding land value.