Builder’s Risk Insurance

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What is Builder’s Risk Insurance all about?

Construction of a building is not an easy financial project. The cost of the materials, labor, equipment and professional fees when summed up can account for thousands if not millions of dollars. While there are insurance programs meant to protect your physical assets, is adding another policy during the course of building construction worth it?

Builder’s Risk Insurance or Course of Construction Insurance is a particular type of policy that covers both residential and commercial structures while they are under construction, being renovated or remodeled. It protects the owners and contractors from destructive events that might result in huge financial losses. It covers damages due to fire, vandalism, theft and other undesirable accidents. The primary purpose of this insurance coverage is to offer financial assistance against building or structure repair and replacement expenses as a result of disastrous circumstances.

Depending on the limit, Builder’s Risk Insurance can cover the whole structure, building materials, supplies and other essential components needed for construction. Usually, the Course of Construction Insurance is paid by the building owner or contractor. While some might see this as an additional cost, it gives peace of mind, knowing that funds would be available should unwanted situations happen.

Do I need Builder’s Risk Insurance?

Unless you have a never-ending source of funds, every building owner or contractor needs to seriously consider getting a builder’s risk policy. This way, you are assured that if anything happens during building construction, you have the funds available at hand to cover up repairs and damages caused by the incident.

Builder’s Risk Insurance can be acquired by a number of parties. It can be purchased as a sole discretion of the building owner, general contractor, project manager or site engineer. This can be specified in the construction contract as “named insureds” or “unnamed insureds.” Both named and unnamed insureds are protected from legal charges, as well as paying up for the incurred losses.

Most of the time, this insurance policy is obtained by the landowner. But others would require every contractor to have it available especially when bidding for valuable projects. Though, note that not all providers grant Builder’s Risk Insurance to all contractors. Insurance companies often require builders to have a minimum amount of experience, generally 2-3 years, before they can avail of this policy. Additionally, it should be purchased when the construction is less than 30% complete and usually ends 90 days after project completion or when the owner takes possession.

What does Builder’s Risk Insurance cover?

Builder’s Risk Insurance provides coverage for the property, supplies and other materials needed to complete the construction project. Adding this policy to your building construction means solid protection from various risky events. Coverage options may vary depending on your policy, but it typically includes:

  • Fire
  • Theft
  • Lightning
  • Explosion
  • Impact by vehicle or aircraft
  • Windstorm, hail, and rain
  • Riot and vandalism
  • Other malicious acts

Along with the included coverage comes exclusions and limitations. Builder’s Risk Insurance will not cover contractor tools and equipment as well as soft costs like labor fees to rebuild certain things. Moreover, damages resulting from faulty design, planning, and workmanship are commonly not included. Other risk factors excluded from the policy are as follows but not limited to:

  • Employee theft
  • Water damage
  • Acts of war
  • Government action
  • Mechanical breakdown
  • Materials in transit
  • Scaffolding construction
  • Wear and tear

Earthquake is traditionally not covered the same as flood, but you can request it to be added on the policy for an additional fee. For those who feel the need to extend coverage, you can increase protection by applying for Builder's Risk Insurance Coverage Extension.

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How much does Builder’s Risk Insurance cost?

Your premium will depend on the type of coverage and exclusions from the policy. Generally, the rate of Builder’s Risk Insurance is 1-4% of the construction cost. You may pay an average of $200 monthly for small construction, but this can go up to a $2,000 average monthly premium for bigger projects. It is best to discuss rates with your broker or insurance agent since the cost will depend on the value of the covered property.

Aside from insurance cost, another important thing to note is the coverage limit of the policy. While Course of Construction Insurance will help pay for acquired damages up to your coverage limit, this, however, should be accurately declared and calculated. One way to ensure precise calculation is by reviewing your construction budget.

The total completed value of the building should include materials and labor costs, excluding land value. Determining the completed value of the structure is important not just for coverage limit purposes but this would also give you an idea of how much this policy would cost when purchased.

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The coverage you need depends on the type of business you run. A restaurant owner needs to be covered against customers possibly getting food poisoning while an accountant needs to be covered against calculation errors. CoverWallet's intelligent assessment system will identify the insurance you need based on your specific business, get you a policy that fits your budget, and do it all in less time than you think.

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