If you’re in the construction or real estate business, you are probably very aware of how vital builder’s risk insurance is, but perhaps not entirely clear on what it covers and who is eligible for it. Whether you’re exploring setting up your own business in the construction industry or you want to brush up on the basics, this article is for you. We’ll cover everything you need to know about builder’s risk insurance and how it can help protect you.
What is Builder’s Risk Insurance?
Builder’s risk insurance (sometimes known as construction insurance) is a particular type of property insurance that protects buildings that are not yet completed or still in the construction process. It covers everything associated with the construction of the building, including materials, supplies, equipment waiting to be installed, and fixtures.
Who Needs Builder’s Risk Coverage?
The short answer is a lot of different groups of people. Any company or person who has a financial interest in a construction project needs builder’s risk insurance. Most commonly, they will include the following people:
- Homeowners/property owners
- School districts
- House flippers
- Retail companies
- Development or investment companies
There are three main types of builder’s risk insurance coverage that you may be interested in, depending on the coverage you need.
Delayed Start Up (DSU)
This type of coverage costs the loss of potential income or income in the event of the construction project being delayed due to physical damage or loss.
Soft Costs Coverage
This will cover any costs related to the project that aren’t part of the physical construction of the building, like professional fees, marketing, and realty taxes. This type of coverage is not automatic and will need to be requested
DE5 Design Coverage
This provides coverage for all damages due to some defect. However, this will often exclude any additional improvement costs to the original plan, design, materials, or specifications.
Builder’s Risk Insurance Cost
The cost of builder’s risk insurance is variable depending on what particular type of coverage you need. For example, you may need to add extensions to protect your project if new issues arise or the scope of the work changes. Typically, how much builder’s risk insurance will cost depends on:
- Scope of project
- Policy details like limits and coverage amounts
- Construction materials
A good rule to follow is to choose coverage limits for your builder’s risk insurance policy equal to the anticipated cost of construction. If your construction project has a high cost, this likely means you will have a higher insurance rate. The ideal way to get the best coverage at the best possible price is to work with an insurance agent or broker. Some handy things to consider when it comes to choosing your policy are:
Consider Your Exposures
Do an inventory of your project from start to finish. You may want to get broad protection for property of all kinds at all locations or narrow your coverage to a specific property or risks.
Know When Your Coverage Begins and Ends
Usually, your coverage will begin the day you sign the project. But some policy provisions may restrict when the coverage begins on your project. The same goes for the end date. Coverage will likely end after your project’s completion.
Understand the Coverage for Defective Work Problems
Generally, builder’s risk policies exclude the costs of repairing or fixing fault work from a subcontractor. Some policies with a loss provision may cover any damage due to faulty work.
If you’re looking for builder’s risk insurance for your next construction project, it’s best to speak to an experienced team to discuss your specific requirements. At Dunham Insurance, no matter what type of coverage you need, we take the extra time to make sure that your coverage fits your needs perfectly. Contact us today to get a rate quote and the coverage you need for your next construction project.