You’re planning work on a new build or renovation project, so it’s time to get Builders Risk insurance. A Builders Risk policy is temporary Property coverage designed to protect buildings and structures under construction or renovation. Coverage ends when the project is complete, with policies typically written for three, six, nine, or 12 months. Under certain circumstances, these policies can be renewed for additional time, if necessary.
While Builders Risk policies vary greatly, in general, they can be designed to cover damage to the building from fire, lightning, storms, vandalism, theft, or malicious mischief. The policy covers the cost of materials, supplies, and pieces of equipment on the construction site that are damaged, stolen, or lost due to covered perils. Temporary structures such scaffolding, fencing, or sheds on the construction site may also be insured for loss or damage caused by covered perils.
Coverage can be written on an Actual Cash Value (ACV) or Replacement Cost Value (RCV) basis.
Additional coverages that may be covered with a Builders Risk policy include the cost of removing debris due to a covered loss; soft costs as a result of project delays because of a covered loss, such as additional interest on construction loans, additional permit fees, or other project-related expenses; and loss of income or rental value due to a project delay. It’s important to review whether your policy will cover these and other soft costs.
Some common policy exclusions include:
- Employee theft
- Work vehicles
- Damage from earthquakes and flooding
- Manufacturing defects or flaws in workmanship or design
- Ordinary wear and tear
Considerations When Purchasing Builders Risk Insurance
When buying a Builders Risk policy, work with your insurance broker to ensure that your coverage is suited to your project’s needs. Some of the topics you should discuss include:
- Estimated cost of completed project: The value of the project defines the policy limits, so property valuations should be accurate, especially in today’s market of higher material and labor costs.
- Policy reporting requirements: Will you report values monthly as the project progresses? Do you need to report changes in the construction project schedule, such as delays?
- Type of losses covered: You should be aware of any exclusions in your policy and consider whether you need additional coverage.
- Coverage for materials and equipment: Are these covered when they are not on the job site, for example, while in storage and transit? Do you need a separate policy?
- Additional costs: As discussed above, some Builder’s Risk policies will cover additional costs incurred due to construction delays. Be sure to check what is and isn’t covered.
- Named insured/additional insureds: Contractors, subcontractors, and property owners are frequently involved in construction projects. Make sure you understand whom your policy covers.
Builders Risk insurance is critical in protecting your financial interest in a project in the event of a loss. Speak with your broker about how to best address your insurance needs.
*NOTE: The insuring agreement in a policy sets out the covered perils, assumed risks, and nature of coverage that the insurance company provides to its insured in exchange for the premiums paid. Thus, the terms and conditions of the policy will dictate whether coverage exists and the nature of any potential benefits.