Builders risk is an insurance specialized for dangers that specific industries face. This insurance covers property under construction against incidents with fire, lightning, hail, theft, vandalism and other dangers. Property possibly covered beneath a builders risk policy includes the buildings or structures themselves, materials, supplies and equipment.
In general, anyone with stake in a construction project should carry or be listed on a builders risk insurance policy. This may include:
- Property owners
- General contractors
- Subcontractors
- Lenders
- Architects
- Engineers
- Developers
The primary policy holders are generally contractors, business owners and homeowners. This insurance is crucial for protecting a project while it’s underway. Incomplete projects are at much more mercy to the elements, theft and vandalism than normal structures. The same goes for equipment that is possibly left overnight at the construction site. This insurance doubles as protection for everyone involved, as it provides compensation for lost or damaged items necessary to complete the project.
Is Builders Risk Insurance Required?
Construction contracts often come with a requirement for builders risk insurance. Replacing a half-constructed home or expensive equipment can be costly, and no one wants to pay for starting over out of pocket. The quicker that compensation can be provided to cover the damages or losses, the quicker the project can be resumed and finished. This is why most businesses will require their contractors or subcontractors to carry builders risk insurance.
How Much is Builders Risk Insurance?
The cost of builders risk insurance varies depending on several factors, including the aspects of the project being insured. In general, you may pay anywhere between $1,000-$20,000 for a builders risk insurance policy. Other factors that affect these premiums are:
- Coverage limits
- Location
- Value of materials being used
- Duration of project
- Scope of project
- Claims history
Newer construction projects that require breaking ground, excavation, plumbing or other extensive construction may cost more to insure. You may choose to have a higher deductible to lower premium rates, but keep in mind that you will have to pay more up front before receiving reimbursement for a covered incident.
Does Builders Risk Insurance Cover Mistakes?
There are some exceptions when considering extended coverage, but as a rule, builders risk insurance does not cover negligent acts such as faulty workmanship. Damage resulting as a professional mistake will not be covered under a typical builders risk policy. Other exclusions for these policies include normal wear and tear, intentional damage, criminal acts, bodily injury, floods and earthquakes. Be sure to speak with your insurance agent about the extent of coverage on your policy and add additional coverage if necessary. Projects set to build in a high-risk zone for floods or earthquakes may want to invest in additional coverage. Builders risk also does not cover workers compensation in case an employee is hurt on the job.
The Difference Between Builders Risk and General Liability
There are a few major differences between liability geared for construction and builders risk insurance. The main difference is that builders risk is a property insurance, meaning it covers risks related to property damage to materials, equipment and structures that are part of the project itself. General liability does not cover the construction buildings or equipment, but instead covers third party bodily injury or property damage, such as if someone is injured on the property or someone files a lawsuit concerning false advertising. Neither of these insurance policies cover negligence, intentional damage or criminal acts. Both of these insurances are extremely important for contractors, however, as they protect against dangers that many contractors face. General liability for contractors costs anywhere between $700-$1,200 a year.