What is Builders Risk Insurance and why you need it

Construction projects are a large undertaking. There is pressure to stay on budget and to complete the project on time.

There are also risks you need to account for to protect the building as it is constructed.

What if there is damage to the structure? What if the property is vandalized, or wrecked by severe weather? Having to pay for those repairs can be a large financial burden.
This is where builders risk insurance can provide you with some assurances. Find out what builders risk insurance is, why you need it, how to get it, and more.

Most builders risk insurance policies cover property losses due to:

• Fire
• Lightning
• Hail
• Explosions
• Hurricanes
• Theft
• Vandalism

Other standard exclusions are:

• Ordinary wear and tear
• Acts of terrorism and war
• Rust and corrosion
• Mechanical breakdowns
• Damage from faulty design, planning, workmanship or materials

Extensions can be purchased for buildings located in areas prone to these issues:

• Earthquakes
• Flooding and wind in beach zones

Why Do I Need Builders Risk Insurance?

Constructing a building is a large and expensive undertaking. When you start this project, you want to make sure you have an insurance policy in place to cover you against unexpected occurrences.

Some lenders might also require coverage in order to release funding.

Who Needs Builders Risk Insurance

Builders risk insurance should be obtained by any person or company who has a financial interest in the project. Those stakeholders named on the policy can include the property owner, contractor, subcontractor, architects and engineers.

According to USAssure.com, other groups of people who are eligible to obtain a commercial or residential builders risk insurance policy include house flippers, development or investment companies, retail companies and school districts. The terms of the policy remain the same no matter who is listed on the policy as the insured, but the types of policies available to each person or group can vary by client type.

What Projects Require Risk Insurance

Builders risk insurance can be beneficial for numerous types of construction projects.  Policies are usually available for new construction, remodeling projects and installations. These policies are typically categorized as residential or commercial. While residential might only cover a family home, some commercial policies can cover structures ranging from office buildings to retail centers to sports arenas, and more.

What is Required to Qualify for Builders Risk Insurance?

To qualify for builders risk insurance, you first have to apply for the coverage you want and select an insurance agent to work with. These policies must be purchased before the project is 30-percent completed.
When applying, you might be asked to provide the following information:

• Mortgage information
• Risk management contact
• Names of all partners
• Estimated completion date of the project
• Description of the work to be completed
• Complete financial breakdown of the project, including fees, taxes, legal and accounting fees and promotional expenses.
• Background information on the contractor

All policies must also state when the coverage will end. Situations that can cause coverage to end can include:

• Owner takes possession of the property
• Building has been occupied for a certain amount of days
• Project has been abandoned
• Project is idle for 60 days
• 90 days after the project is completed

Take Security Measures to Lower Premiums

In addition to applying for a builders risk insurance policy, you also have to be able to pay for it.
According to FitSmallBusiness.com, these policies can cost between 1% and 4% of the total construction costs. That can add up for an expensive project. A good rule of thumb is that for every $100,000 spent on the building, you would need to pay $1,000 to $4,000 in premiums.
Fortunately, there are ways to reduce costs. One way is to demonstrate that you have taken security precautions to protect the building site. Hiring security personnel or installing surveillance devices like ECAMSECURE’s products can demonstrate that you’ve taken measures to keep your project secure. This can help lower your premiums.

Benefits of Builders Risk

Builders risk insurance can provide property owners and other stakeholders in a construction project  peace-of-mind that their financial interests are protected. Weather events can cause severe damage, and the threat of theft and vandalism are real risks to account for.  Obtaining a policy provides the benefit of knowing your investment is protected. 

Learn More

Builders risk insurance provides stakeholders with assurances that their financial investment in a construction project, its structure and its materials are protected. It can be difficult to predict when a severe weather event will occur, and while there are services like ECAMSECURE that can help prevent theft and vandalism at the project site, there is still a risk. These insurance policies can help protect you and your stakeholders against those events.