Builder's risk insurance is also called course of construction insurance. It provides coverage for structures under construction for damages related to fire, theft, vandalism, and other risks.
A builder's risk insurance policy covers damage to a construction project caused by non-severe weather events, fire, vandalism, or theft. If an unexpected event harms the structure or materials on your construction site, this insurance coverage pays for the repairs or replacements needed to get the project back on track.
Because of this protection, builder's risk insurance is a key policy in the construction industry. In fact, your clients might request that you carry this policy before you begin work, or it may be required by local building codes.
Any business owner with a financial interest in the project should secure this coverage. In some cases, the homeowner may buy this coverage and add you to their policy as an additional insured.
If you rely on lenders to finance a construction project, they might require you to have this coverage, and to be listed on your policy as a loss payee.
Builder's risk insurance covers a structure in progress during its construction, as well as materials. This business insurance policy will pay for repairs and debris removal in the event of a fire, or the cost of replacing lumber stolen from a worksite. Specifically, builder's risk insurance provides coverage for:
Builder’s risk insurance covers the cost of damage caused by non-severe weather events, such as wind, rain, and hail.
A fire at a construction site could severely damage building materials or an unfinished structure. Builder’s risk insurance covers the cost of replacing or repairing items damaged by fire.
A vandal could set a construction project back months by breaking windows, destroying fixtures, and spray painting walls. If your construction site is vandalized, builder’s risk insurance can reimburse you for the cost of repairing the damage.
Because construction sites are often left unguarded, they are a common target for thieves. Builder’s risk insurance can compensate you for stolen materials.
Construction companies and contractors should invest in builder's risk insurance while they are building or renovating a house, garage, office, or other structure. Anyone with a financial stake in the project, from the homeowner to the building designer, should carry this coverage.
This insurance policy can keep your company financially stable while you recover from the aftereffects of a storm or fire. It's strongly recommended for all construction projects, especially in areas where theft and vandalism are major risks. For some contracts, it may be required.
You might also need additional coverage. For example, general liability is often the first policy that most small business owners purchase. Depending on the type of work you do, you might also need professional liability coverage, or profession specific coverage such as contractors all risks insurance.
General contractors take on big projects, which can come with big risks. An incident that destroys your hard work could also bankrupt your construction business.
For example, a fire sweeps through a construction site, scorching the siding of an unfinished building. To replace the siding, the general contractor makes a claim on their builder’s risk policy and is reimbursed for the cost of repairs.
Carpenters who are building new structures such as garages, sheds, and homes should invest in builder's risk insurance to protect the structure and their materials.
For example, freezing rain could damage the lumber stored at a construction site. The carpenter is responsible for replacing it, so they can turn to their builder’s risk insurance to cover the cost.
Electricians working on new homes and offices should consider investing in builder's risk insurance.
For example, a thief breaks into a construction site and makes off with thousands of dollars' worth of copper wire. The electrician uses builder’s risk insurance to cover the cost of replacing the stolen wire.
Engineers who are involved in the structure's design and construction should also be covered by builder's risk insurance while the work takes place. If a fire or other incident occurs, the policy will pay for any damages that could be passed along to the engineer.
While builder's risk insurance provides crucial protection for structures in progress, it does not cover every risk. For example, you'll still need general liability insurance to protect against accidents that injure someone or damage their property, along with commercial auto insurance for any vehicles owned by your business.
Common exclusions for builder’s risk insurance include:
Builder’s risk insurance doesn’t usually cover damage caused by natural disasters like floods, earthquakes, and tornadoes. To cover these types of events, add a severe weather endorsement to your policy.
Builder’s risk insurance doesn’t cover damage to an unfinished structure that results from faulty design, negligent construction, or material defects. Professional liability insurance for construction workers and contractors helps protect your business from these liabilities.
Builder’s risk insurance does not protect employees from injuries or illnesses related to work on a construction site. Workers’ compensation insurance helps pay medical costs and partial lost wages resulting from work injuries and occupational illnesses.
Builder's risk insurance covers structures under construction, but it doesn’t protect against many other types of business risks. Construction and contracting business owners should also consider:
General liability insurance: This policy can cover expenses related to client injuries and damage to a customer’s property.
Business owner's policy: A BOP bundles general liability coverage and commercial property insurance at a discount. It protects against the most common lawsuits and property damage.
Professional liability insurance: This policy covers professional mistakes and oversights, such as a contractor missing a project deadline.
Surety bonds: These bonds reimburse your clients for financial losses if your company is unable to fulfill the terms of its contract. They may be required to qualify for contracts or obtain a construction permit.
Contractor’s tools and equipment insurance: Covers the cost of repairing or replacing your tools and equipment if they’re lost, stolen, or damaged. This typically applies to equipment that is less than five years old.
Builder’s risk insurance is a type of commercial property insurance that lasts only for the duration of a construction project. The policy usually goes into effect before the first building materials arrive at the job site, and coverage ends as soon as the project is complete.
Depending on the insurance company, this coverage may be added as an endorsement or purchased as a standalone policy. The policy can cover an existing building under renovation or new construction.
You might wonder who is responsible for builder's risk insurance. Anyone with a financial stake in a construction project can purchase a builder’s risk policy to protect their investment from theft and property damage. That includes general contractors, carpenters, subcontractors, building owners, commercial builders, and developers.
If the property owner or developer buys the policy, contractors or subcontractors may want to make sure they are listed as a named insured. You may need to have a discussion with all involved parties to clarify who is responsible for buying the policy and who is listed on it.
This type of insurance is usually more important for contractors than property owners, since courts typically hold contractors liable for construction site damage.
Builder's risk insurance and course of construction insurance refer to the same coverage. The only difference is what the insurance company chooses to call the policy.
However, there are differences in what your insurance company might include in your policy. With some policies, you may need to add inland marine insurance to cover items in transit or stored off-site, such as tools and equipment or materials.
Other builder's risk policies might include this protection. When you buy a policy, confirm with your insurance agent what it does and does not include. They can help you secure any additional coverage you might need.