Builders Risk Insurance 101

We’ve all been there. Playing on the floor with your beloved blocks, or Lincoln logs, or magnetic construction toys(or whatever other nostalgic building toy), building an absolutely magnificent castle when your older sibling comes trotting around the corner. Of course, as a natural sibling reaction to this scene, they must send their foot flying through the almost-completed structure on the floor before you. And there it goes, our masterpiece scattered across the floor for the family dog to inspect.

Maybe you’re lucky and never had that experience, or maybe you have, and you don’t want to repeat the heartache and pain of picking up those pieces and rebuilding. Whatever the case may be, if you have now moved your construction projects from your parents’ living room floor to the Real World, you’ll need protection from the Real World equivalent to a siblings’ malicious intent. Builder’s risk insurance is a must-have for contractors and owners undergoing new construction or renovation projects.

What is builder’s risk insurance?

Builder’s risk insurance is most commonly used for commercial purposes, such as new construction. Its purpose is to protect the project as well as the materials and supplies on site. This is a short-term insurance policy designed to protect for the duration of the project; meaning you need to know when the policy ends! This will be named for each policy, but it could end when the owner accepts the project as complete, when the project is ready for use as intended, or when it becomes occupied.

What does it cover?‍

The coverage for each policy is largely dependent on the project; the project type, coverage amount and tenure, materials used for construction, and location of the project all go into calculating exactly what needs to be, and what can be, covered.

Before extensions, these policies typically cover the labor and material costs to repair damage to structure that has been completed, material on the job site that has yet to be installed, and equipment specified in the contract. Damages can come from certain types of weather damage, theft and vandalism, loss of supplies or materials, even damage done from a vehicle.  

Possible extensions for the policy can include protection for temporary structures, scaffolding, cleanup of debris and pollutants, materials in transit from one place to another, valuable documents such as blueprint and site plans, costs that aren’t directly related to the construction such as interest loans or real estate taxes, and more. If you’re unsure about what coverage your project will need, talk to a—say it with me—local independent Town & Country Insurance agent. They’ll guide you through the whole process!

Takeaway

General commercial liability insurance or standard property insurance, two policies that may already be in place, are not likely to cover all the possibilities for damage to a construction project, so it is important to get this specified, short-term insurance to save yourself from potential financial ruin.

Builder’s risk insurance generally costs between 1 and 4% of the total cost of construction, which is a heck of a lot better than having to pay costs out-of-pocket when your seven-story tall older sibling decides to knock down your new construction building. Okay, maybe damage won’t play out exactly like that, but better safe than sorry!