Inside a Builder’s Risk Policy
Builder’s Risk insurance covers buildings under construction as well as projects undergoing remodeling and renovations. Anyone with a financial stake should purchase Builder’s Risk insurance, including building owners, contractors, subcontractors, architects, and engineers.
A Builder’s Risk policy provides protection against multiple exposures including fire, lightning, hail, hurricane, explosions, theft, and vandalism. A policy can be designed to cover:
- Buildings and structures that are under construction, including temporary storage buildings, fencing, and scaffolding
- Property in transit to the jobsite
- Equipment, such as repair of damaged equipment
- Materials and supplies being used
- Constructions signs, trees, and plants
- Valuable papers, such as blueprints, and electronic data
- Labor
Some Builder’s Risk policies may also provide Ordinance and Law insurance to pay for the increased cost to repair or rebuild due to building codes and laws in effect at the time of the loss. In addition, policies can be designed to cover what are known as “soft” costs that result from construction delays, including additional interest on loans, lost sales income, real estate taxes, and rental income. Each carrier’s policy differs, so it’s important to check what soft costs are covered.
Coverage is temporary and usually ends on a date specified in the policy or when the project is considered “completed.”
Equally important is to explain to clients what is not covered under a Builder’s Risk policy. Some exclusions include acts of terrorism and war, damage due to faulty design, employee theft, mechanical breakdown, and wear and tear.
Determining the Value of the Project Under Construction
Discuss with clients the projected value of the completed project in order to determine the Builder’s Risk policy limits. Also, discuss what type of reporting the policy requires. Because it can be difficult to determine the full value of a property while it is under construction, for more accurate coverage, a client should provide a schedule of actual value each month.
The cost of Builder’s Risk insurance depends on several factors, including the type of construction, location, length of construction, the project’s estimated hard and soft costs, the type of safety and protection monitoring on site, the experience and loss history of the builder/contractor, and materials used in the building’s construction.