Builder’s Risk Insurance

What is a builder’s risk insurance policy?

Sometimes referred to as course of construction insurance coverage, a builder’s risk insurance policy is a policy that covers the construction project during the building phase. Builder’s risk insurance covers new projects, renovations and rebuilds.

Considerations when creating a builders risk insurance policy:

• Type of construction
• Value of project and materials (size of project)
• Security measures
• Timeline - how long will this project take?
• Contractor’s claims history

What does builder’s risk insurance cover?

During construction, a property is exposed to different losses than other completed and occupied properties. That’s why it’s important to secure a builder’s risk insurance policy before starting any construction project.

A builder’s risk policy can cover losses arising from:

• Lightning strikes
• Fire
• Theft and vandalism during construction
• Wind and hail damage
• Explosions

Should a devastating event occur during the build, a builder’s risk insurance policy can take care of:

• Replacement of building materials
• Physical damage to the property
• Legal fees or architectural costs
• Cost to remove debris

The importance of insuring hard costs and soft costs on a builder’s risk policy

Construction projects can have varying costs associated with them, known as hard costs and soft costs.

Hard costs

Hard costs, also known as direct costs, generally cover the physical materials, supplies and labour required to finish a project.

Soft costs

Soft costs generally cover indirect costs associated with a project outside the physical construction, including real estate taxes, design work, developer’s fees, interest, accounting and legal fees, inspection fees and additional insurance costs.

Soft costs may not always be covered under a standard Builder’s Risk policy, an endorsement may be needed that specifies the soft costs covered in the event of a loss.

Should a loss occur, the expenses from soft costs can quickly add up. For example, say a fire broke out in a subdivision development, causing three single detached homes to burn. The site may need to be resurveyed. Insurance costs could increase if the term needs to be extended. The engineers and architects may charge a fee to redraw plans. New permits may be needed, which may incur legal fees.

Learn more about whether the soft costs are insured for your next construction project by speaking to a BrokerLink insurance advisor.

Pro Tip

When insuring your project, your insurance limit is the total value of the project on the last day of construction. For example, the value of the project the day the construction is completed.

Who needs builder’s risk insurance?

Contractors, building owners, engineers and project managers can all purchase a builder’s risk insurance policy.

Blanket builder’s risk coverage

Blanket builder’s risk coverage allows contractors to insure for an entire year instead of insuring each construction project. This type of coverage can minimize some of the administrative work that comes with each individual project. Talk to a BrokerLink commercial insurance expert to know whether blanket builder’s risk coverage is right for the type of work you do.

You can also get wrap-up liability coverage to protect against claims caused by subcontractors.

Wrap-up liability coverage

Wrap-up liability coverage works in a way similar to a commercial general liability policy, however, instead of applying to a specific legal entity, a wrap-up liability policy applies to a specific project and covers the liability for the owner, general contractors, and sub-contractors involved in the project. It does not impact the company’s general liability policy, but instead acts as protection to keep the general liability policy clear of claims.

Ask a BrokerLink broker about builder’s risk insurance

Turning your dream into reality involves a lot of time and money. A builder’s risk insurance policy can help protect construction projects big or small. A good policy will help ensure that the time you take planning and coordinating isn’t all lost should a claim occur. BrokerLink is here to help you protect what is most valuable, so you can focus on building your dreams.

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FAQs about builder’s risk insurance

What is the difference between property insurance and builders risk insurance?

Commercial property insurance provides coverage for your business and its contents or physical assets, as well as exterior fixtures, such as a fence or outdoor signs. It can also help cover your repair or replacement costs if your business property is damaged or destroyed as a result of a covered loss. Property under major renovation or construction are generally excluded from commercial property insurance. Builder’s risk insurance is a separate policy, created specifically to cover your property for the construction project at hand.

Do I need a builder’s risk policy if I already have contractors insurance?

If you are a contractor, you should have liability insurance coverage for your contracting business. When you start a new construction project, you should call your insurance broker to have them add a builder’s risk policy to cover your property at this specific project.

What is not covered by builders risk insurance?

Builder’s risk insurance does not cover damages to the property before the project begins or after project completion. Construction must be underway for coverage to kick in. It also may not cover:

• The contractor’s tools and equipment (which should be covered under the contractor’s own policy)
• Faulty or improper workmanship, materials and design
• Bylaws
• Loss caused by stoppage of work or by interruption of construction
• Earthquake and flood

Every policy is different. Speak to your broker to understand what your builder’s risk insurance policy entails.