Builders risk insurance helps protect properties under construction.

Safeguard your property as the project is being built with builders risk insurance.

What Types of coverage are included with a Builders Risk policy?

Builders risk insurance is a specially designed insurance policy to protect builders and owners from loss of their work during construction. Perils covered include fire, lightning, windstorm, hurricane, hail, theft, vandalism etc. Builders risk policies are written on an “All Perils” basis which means that all perils are included except those that are specially excluded. Builders risk coverage also extends to construction materials in transit or stored at a temporary location. Exclusions are earthquake, flood, faulty design, poor workmanship and defective materials, weather damage to property in open, war, and contract penalty. Certain perils such as earthquake and flood, can be added back by endorsement for an additional premium.

Coverages that are not included

Builders risk insurance does not cover the liability of the project. Commercial General Liability insurance should be purchased by both the owner and contractor to cover public liability for bodily Injury and property damage. Contractor tools and equipment and construction trailer and autos are not covered by a builder’s risk policy Another policy which should be purchased prior to the beginning of construction is Workers compensation insurance.

You Can Design your Builders Risk to cover Profit and Soft Costs

There are three categories of loss exposures in a builder’s risk policy: (1) “hard” cost, (2) “soft” cost and (3) profit, business income or loss of rents. If your construction project is delayed due to a covered peril such as a fire or tornado and you must rebuild, the basic builders risk policy covers the cost of materials and labor to rebuild often referred to by builders as the cost of “sticks and bricks” or “hard” costs. Most builders risk policies are only designed to cover the replacement of the structure itself. However, the buyer of a builder’s risk policy should not overlook the insurance to cover the “soft” costs and profit. In addition to the cost of materials and labor to rebuild, owners also have “soft” cost exposures which should also be insured because they may be significant especially near the completion of your project. Soft costs include construction loan interest, real estate taxes, advertising, re-leasing expenses, architectural, engineering, consultants, legal, insurance premiums etc.

Builders risk policies may also be designed with coverage to provide “soft” costs and we recommend that you consider this optional but important coverage. Builders who build a volume of homes or buildings annually, may be able to purchase a reporting form policy which will allow the premium to be paid monthly. Otherwise, the full-term premium must be paid in advance.