Builder’s Risk Insurance, also known as Course of Construction Insurance, is a specialized type of property insurance designed to cover buildings or structures under construction or renovation. It protects against damage or loss due to various risks that might arise during the building process. Let's see how it works in this article.
What Does Builder's Risk Insurance Cover?
Builder's risk insurance typically covers physical loss or damage to the property under construction from several potential causes. These can include:
- Fire or lightning: Unexpected events like fire or storms can severely damage a construction site.
- Theft and vandalism: Construction sites can be targets for thieves looking to steal valuable materials or vandals causing damage.
- Windstorm: Projects in areas prone to extreme weather conditions are especially at risk.
- Material damage: Builder's risk policies also protect construction materials, whether they are on-site, in transit, or temporarily stored elsewhere.
Why is it Important?
The construction industry is fraught with potential risks, ranging from accidents to severe weather events. If a project is delayed or damaged, the financial repercussions can be devastating without proper coverage.
Not only does builder’s risk insurance offer property protection, but it also plays a vital role in risk management for construction projects. It's similar to how your car gets covered in case of accident or theft when you have car insurance.
It is particularly crucial because general liability insurance does not cover the physical property, meaning losses from events like fire or theft wouldn’t be covered without a specific policy.
If you're wondering who actually needs this insurance, it is typically for anyone with a financial stake in the construction project. This includes property owners, builders, general contractors, subcontractors, and even real estate developers. Having this coverage helps ensure that all parties involved in a project are protected if disaster strikes during the course of construction.
What’s Not Covered?
While builder’s risk insurance offers construction project coverage, it doesn’t cover everything. It typically excludes:
- Workplace accidents or injuries, which would require separate liability insurance.
- Acts of war or government action.
- Normal wear and tear or mechanical breakdowns.
In some cases, builder’s risk policies might also exclude coverage for certain natural disasters, unless specific endorsements are added. It’s important to thoroughly review a policy and understand what is and isn’t covered to avoid surprises later.
When Should You Buy Builder’s Risk Insurance?
The best time to secure builder’s risk insurance is before construction begins. Most policies are purchased when the construction contract is signed, but coverage must be active from the moment materials arrive on-site until the project is completed. Typically, builder’s risk insurance ends when the building is completed or when it is occupied. If you still want insurance after your building's completion, then you can opt for homeowners insurance.
How Much Does It Cost?
The cost of builder’s risk insurance varies depending on several factors, including the total value of the construction project, the location, and the type of construction.
On average, premiums range from 1% to 5% of the total construction budget. For instance, a policy covering a $500,000 project might cost between $5,000 and $25,000.
It’s important to balance premium costs with the need for comprehensive coverage, especially for high-value projects.
Final Notes
In today's unpredictable environment, it’s better to be safe than sorry. Real estate development and construction projects are huge investments, and builder’s risk insurance ensures that you can weather the unexpected without breaking the bank.