While you are working on a construction project, there is a lot that can go wrong. Storms, fires, theft or other hazards can jeopardize worksites, damaging buildings under construction, equipment, and more. What can you do about it? The answer is to purchase builder’s risk insurance.
In this post, we will go over exactly what builder’s risk insurance is and how it works. We will tell you what it does and does not cover and how you can save on costs when you are shopping for policies.
Do You Need Builder’s Risk Insurance?
First of all, do you have to purchase builder’s risk insurance? Legally speaking, no. You do not have to purchase this type of policy to qualify for a contractor’s license.
But you might be required to carry it in order to work on certain projects, especially government contracts or any type of construction that is being financed via a government loan program.
It is also wise to carry builder’s risk insurance as a contractor or developer simply to protect yourself. All it takes is one bad storm or fire to cause many thousands of dollars in damage.
Consider getting builder’s risk insurance if any of the following describe you:
- General contractor
- Property owner
- Architect or engineer
You can use a builder’s risk insurance policy to cover:
- Electrical work
These types of property are not covered in case of every type of damage. But they are generally covered in case of the following:
- Water damage (i.e. corrosion)
- Civil unrest (sometimes; some policies list this as an exclusion instead)
- Vehicle collision
You will have to check your specific policy to know exactly what is covered.
The following are usually excluded from builder’s risk insurance policies:
- Injuries (get a liability policy)
- Workers’ compensation (you need to purchase a workers’ comp policy)
- Vehicles (for this you need commercial auto)
- Tools and equipment (there is a separate type of policy for these)
- Legal expenses
- Wear and tear
- Theft by employees
- Flaws in your crew’s work
- Flood damage
- Earthquake damage
Additionally, any damages that happen before construction commences or after it concludes are not covered by builder’s risk insurance.
There are quite a few different extensions you can purchase to increase the coverage of your builder’s risk insurance policy. Here are some examples:
- Additional causes of loss. So long as a cause of loss is not specifically excluded (see the section above), you may be able to add it on as an extension. So, say the policy you are buying covers losses due to wind, but not snow or rain damage. You may be able to purchase an extension that will cover damages from these sources.
- Additional insured. In some cases, you might be able to add someone as an additional insured if you want to cover their machinery, etc., and not just your own.
- Debris removal. Say a hurricane comes along and wipes out your structure. While your builder’s risk policy may cover the structure itself, what about the cost to dispose of all of the debris scattered around your worksite? That is what a debris removal extension is for.
- Plants. You can add an extension to cover damages to plants during construction.
- Electronic data. If you are storing electronic data at a worksite, and it is destroyed, significant losses could result. You can help to offset some of these losses with an electronic data extension.
- Cleanup of pollutants. Going back to our hurricane example, let’s say the storm damages a container that was holding toxic chemicals, and they spilled. You now have to clean it up, which can be an expensive prospect. You can help cover the costs with this policy extension.
- Changes in local laws. Let’s imagine you are partway into construction, and suddenly, a law changes, requiring you to stop what you are doing and change course. You might even have to undo some of what you have already done. This extension can help you cover the costs while making such an adjustment.
- Preservation of property. There might be scenarios where you need to relocate covered property away from the worksite. You might be doing this to protect it from damage. If so, this extension ensures that it will still receive coverage even while it is not at the job site.
- Fire department costs. What if the fire department has to send a truck out to your construction site? This can be a pretty expensive cost to cover on your own. But with this extension to your policy, you may not have to.
- Contract delay. If a delay in finishing your project results in a financial cost, you might be able to offset it by getting this type of extension to your policy. This extension might also cover penalties for incomplete projects.
- Modular structures. Sometimes modular/temporary structures are included in the base policy, while other times they are not. If they are not, you might still be able to get coverage for them by purchasing an extension.
Some additional types of extensions available for builder’s risk insurance policies include equipment testing, expedited services, cost escalation, labor expenses and profit coverage.
The exact options available vary from carrier to carrier. So, you will need to investigate them when you are comparing policies to make sure you are picking a company that can give you what you need.
How Much Does Builder’s Risk Insurance Cost?
The best way to estimate what builder’s risk insurance will cost you is to start with the budget for your project, and then calculate 1-5%. Your cost will likely fall somewhere in that range.
Because projects can vary considerably in terms of costs, there can likewise be quite a bit of variation in builder’s risk insurance costs.
Here are some ways you can minimize the price for builder’s risk insurance:
- Buy only the types of coverage you need. It can be tempting to get every type of extension available to you. But you probably do not need every single option. Figure out what is really important for your project.
- Do not purchase a longer duration than necessary. Builder’s risk insurance policies are designed to cover losses during individual projects. That means that the timeframes for these policies are finite. If you expect a project to take six months to complete, you may want to see if you can get coverage for just that duration, and then extend it if necessary should you fail to meet your deadline.
- Improve workplace safety. The more steps you take to reduce risk through appropriate workplace safety practices, the less likely you are to actually have to file a claim. If you are preventing accidents effectively, you might not need to buy as much coverage as you would otherwise.
- Choose lower amounts. You should have a choice of policy limits. If you are willing to reduce the amounts, you should qualify for lower premiums.
- Accept higher deductibles. Like other types of insurance policies, builder’s risk insurance policies have deductibles. You need to pay your deductibles out of pocket before the plans will pay out on covered losses. By raising your deductibles, you can pay less for your premiums. Just make sure you are okay with taking that risk, since it will mean higher expenses should something go awry during construction.
- Watch out with subcontractors. Thinking about adding your subcontractors to your policy? This may or may not be a good idea. It all comes down to the individual safety records of those subcontractors. If your subcontractors pose extra risk, you might want to leave them out of your policy so you can keep the costs down. Instead, hire subcontractors who take out their own insurance.
- Look for discount opportunities. Insurance carriers often offer various types of discounts for which you might qualify. For instance, if you bundle together a builder’s risk insurance policy with other types of construction insurance policies (or unrelated policies), the carrier may offer you lower premiums all around. Ask your insurance company if there are any other discounts you can qualify for as well.
- Keep a clean track record. If you have a record that is relatively clear of accidents and claims, you will give insurance companies the impression that you are operating safely and represent a minimal risk. Based on that assessment, they may offer you more competitive premiums than they would if you had an extensive history of claims. Indeed, as you build a relationship with an insurance company over the long term, they may start offering you more affordable premiums since they know and trust you.
- Compare builder’s risk insurance quotes. If you only contact one company for builder’s risk insurance quotes, you will never know whether you could have found a more affordable price elsewhere. Take the time to shop around. It could save you a considerable amount of money on your builder’s risk insurance over the years ahead.
You cannot just take a guess at how much builder’s risk insurance to buy, or what extensions you need. You should do the math and calculate exactly what your financial risks would be given a range of possible scenarios.
- Calculate the total cost for the project, and then 1-5% to get the general price bracket.
- What would the costs be if various things went wrong? (take a guess at likely hazards and the damage they could do, and then calculate the potential expenses).
You can take into account the location where you are working (i.e. whether you are in a hurricane zone), the nature of the site, the track records of the subcontractors, and other individual factors that could influence your risks.
Once you have conducted an honest assessment and come up with concrete numbers, you should have a pretty good idea what you need to buy.
You may find that the builder’s risk insurance costs for each of your projects vary dramatically in some cases, depending on the sizes of the jobs and the risk factors involved. So, you will need to do this math each and every time before you shop for policies.
Where to Get Builder’s Risk Insurance
Now that you know more about builder’s risk insurance extensions, pricing and more, you are ready to start browsing plans. Below are several of our top recommended insurance companies and some details on their policies and features.
1. The Hartford
The Hartford is your one-stop-shop for fully customizable builder’s risk insurance. Depending on the extensions you select, your policy can cover the basics along with:
- Modular components
- Other peoples’ property
- Electronic data (and physical papers)
- Debris removal
- Pollutant cleanup
- Ordinance changes
- Expediting expenses
- Contract penalties
- Damage related to fungi, bacteria and viruses
- Architects and engineering
A standout feature of The Hartford’s policy is their single deductible. The Hartford explains, “If multiple deductibles apply to the same loss, we will only apply the largest applicable deductible to the item for which the claim is made.”
Best For: Keeping deductible costs from getting out of control.
You can go through Chubb for insurance that will cover physical damage as well as delays during a construction project. As with The Hartford, extensive customization options are available.
While contractors working on a wide range of projects can take out policies with Chubb, this company is especially recommended to homebuilding contractors.
Best For: Homebuilding projects.
General contractors looking for builder’s risk insurance will be especially appreciative of the flexibility offered by Nationwide. Here are the endorsements you can add to your policy:
- Expediting expenses
- Debris removal
- Emergency removal
- Equipment breakdown
- Scaffolding re-erection costs
- Fire department charges
- Business income expenses
- Sewer backup
- Personal property
- Pollutant cleanup
- Fungus damage
- Damages from fraud
- Ordinance changes
Nationwide also offers other types of insurance to construction professionals such as commercial property insurance, construction equipment insurance, and surety and fidelity bonds. You may find it convenient to bundle together multiple types of construction insurance policies through Nationwide.
Best For: General contractors looking to bundle policies.
Get Builder’s Risk Insurance Quotes Now
Even though builder’s risk insurance may not be required by law, it is something every contractor should have.
If a storm, theft, or another hazard results in losses for your business, your builder’s risk insurance policy could end up saving you thousands of dollars. It can also help you to continue working toward completion of your project without unnecessary hassles or delays so you can meet your deadlines.