Builder’s risk insurance protects property and construction materials during a construction or renovation project. Builder’s risk insurance covers property on construction sites when it’s damaged or destroyed by fire, vandalism or other unexpected events. Coverage ends when the project is complete.
If you have a financial stake in a construction project, you should have builder’s risk insurance. This kind of business insurance may also be required by a mortgage or construction agreement.
Builder’s risk insurance policies, also known as course of construction insurance policies, can vary widely from one provider to another.
Who needs builder’s risk insurance?
Builder’s risk insurance is important coverage for anyone with a financial interest in a property that’s being built or renovated, including:
- Building owners.
- Architects or engineers involved with the project.
- Contractors or subcontractors.
When multiple parties go in on a construction project together, the general contractor will usually purchase the builder’s risk policy and act as the primary insured. The building owner and subcontractors will be listed as additional insureds. However, depending on what the construction contract says, the building owner might have to purchase the policy.
What does builder’s risk insurance cover?
In general, builder’s risk insurance covers the property on construction sites when it’s damaged or destroyed by fire, wind, vandalism, vehicle collisions or other accidents. Some policies also cover construction materials stored off-site and cleanup costs like debris removal.
But there’s no standard template for a builder’s risk policy, which is different from many other types of business insurance. As a result, coverage can vary a lot by provider. Here’s what to look for in your policy:
Materials that can be covered if they’re damaged or destroyed: All builder’s risk insurance policies will cover the building that’s being constructed or renovated and, usually, materials that you store off-site that are damaged or lost in transit to the construction site.
Policies may not include the following by default, though. If yours doesn’t, you may be able to add coverage via an extension:
- Documents and data: Blueprints, specifications and other documents that are damaged or lost.
- Temporary structures: Such as scaffolding or signs.
- Soft costs: The “soft costs” of delayed construction, such as architect fees, penalties owed to the local government and additional real estate taxes.
Other covered costs in case of property damage: In addition to physical damage or loss, you can be reimbursed for protective measures that you have to take as a result of the damage, such as debris removal and pollutant cleanup. If you’re repairing a building that had previously received green energy certifications, your policy may even cover those recertification fees.
How the insurance company will determine the value of your property: Some insurance companies pay only for the actual cash value of damaged or lost property, and others pay for the property’s replacement value. The latter usually results in larger payouts, but also more expensive premiums.
Covered causes of loss: Builder’s risk policies usually provide all-risks coverage, which means they cover property damage caused by anything except what is specifically excluded in the policy.
What’s excluded by builder’s risk insurance?
Some causes of loss that are often excluded from builder’s risk insurance policies are:
- Employee theft.
- Work vehicles.
- Damage from earthquakes and flooding.
- Manufacturing defects or flaws in workmanship or design.
- Ordinary wear and tear.
Builder’s risk policies also exclude damage that occurs after a project is finished. Once construction is complete, your coverage ends. At that point, you can get coverage that’s similar to builder’s risk insurance by purchasing:
- Business property insurance, to cover the structure and its contents in case of fire, theft, hail or other accidents.
- Inland marine insurance, to cover materials and products while they’re in transit.
At Flathead Insurance, you and your business are very important to us. Call us at (406) 752-8000 or (208) 667-7485 or visit our website at https://www.flatheadinsurance.com/ to discuss your insurance needs. We can provide coverage from many insurance carriers so you receive the right insurance for your budget and needs!
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