When you’re putting a lot of time and money into a home or building project, you want to do everything in your power to ensure that you are protected in case of an accident or unforeseen event. No one wants to take a chance when they have such a high financial stake in a project. That’s where builder’s risk insurance comes in.
Unlike traditional property insurance, these policies keep you covered from the very beginning, when that first shovel hits the ground or that first wall is torn down, all the way up to when you have a new beautiful home or commercial building. Whether there’s a fire, theft, or vandalism–which unfortunately happens far too often–you can feel rest assured that you won’t face any losses.
We understand that because there are so many different builder’s risk insurance policies out there, picking out the right one for you and your needs can feel overwhelming, to say the least. That’s why Odell Studner is here to help you make the best possible choice. We’re breaking down everything you need to know–from what it is, how much it’s going to cost you, who should pay for it, what’s covered, and more.
What is Builder’s Risk Insurance?
If you have ever built a property or know someone who has, you may be aware of just how much can go awry. From lost materials to vandalism to an unfortunate disaster such as a fire, there’s a lot that can ruin your progress in an instant. That’s why many builders opt for builder’s risk insurance. It keeps you protected from those unexpected losses.
The same goes for home renovations. While you may not be building a home from the ground up, many things can still go wrong during construction. The last thing you want while sprucing up your home to make it look brand new is damage caused, leaving you even more financially strained.
Who Needs Builder’s Risk Coverage?
If you are currently building a property or have an interest in building one and you want to set yourself up for success while it is being built or renovated–especially financially–builder’s risk coverage might be right for you. This includes owners, architects, engineers, lenders, developers, and contractors.
Depending on how many people work on a project together (i.e., an architect and a contractor), the insurance may fall on the shoulders of one person while the others are listed underneath the primary. The company you end up insuring your property with may also choose the building owner as the primary policy holder.
What is Covered by Builder’s Risk Policies?
When it comes to builder’s risk policies, it’s not one-size-fits-all. Every policy is going to cover different things, which is why it’s important to choose the policy that fits your needs best. However, when it comes to coverage, there are a few things that almost every policy covers.
For example, you’ll likely be covered in cases of fires, lightning, smoke, theft, vandalism, and vehicle collisions. Depending on your insurance, you may also be covered for debris removal, materials that are stored elsewhere, lost sales, and lost rental income.
What Construction Costs Should Be Excluded From BR Policies
As with any insurance policy, there are going to be things that are excluded. While coverage varies, some things that you will find are not covered include mechanical breakdowns, any documentation or data that is damaged, short-term structures, employee theft, regular wear and tear, fees and penalties, and poor workmanship.
Coverage for Faulty Design, Materials, and Workmanship
As mentioned earlier, when it comes to faulty design, materials, and workmanship, you’re likely to find that how you’re covered is dependent on the insurance that you choose. In most instances, workmanship and poor design are not going to be covered. You may be covered if the materials you receive are not functional. But if there’s an issue with them because of a worker rather than the materials themselves, your insurance policy will not cover it.
How Much Does Builder’s Risk Insurance Cost?
There are a few things to take into consideration when it comes to the cost of builder’s risk insurance. The biggest factor that is going to affect the price is the size of the project. In most instances, it’s going to cost anywhere from 1% to 5% of the entire project cost. That’s why a hundred-thousand-dollar home will be drastically different from a million-dollar home. The location, length of policy, and materials used also affects the price.
To give you a numeric perspective, if you are building a $600,000 home, your policy is likely going to cost anywhere from $6,000 to $24,000. Because that’s such a big difference in numbers, you’re going to want to take your time picking the policy that’s right for you and your project. While having builder’s risk insurance is extremely important, it’s not worth over or underpaying–even if that means doing homework to figure out what works best for you.
Who Pays for Builder’s Risk Insurance?
This is yet another aspect of builder’s risk insurance that is entirely dependent on the project itself. If the project is a home renovation, the homeowner and contractor will typically come to a conclusion about who is responsible for insurance. If the property is a new build or a commercial project, the contractor is typically the one who takes out the policy. It’s just important to also include the subcontractors, architects, etc., as additional insured.
How to Choose a Builder’s Risk Insurance Policy
While builder’s risk insurance isn’t hard to get, there’s a wide variety of policies out there, and it’s not something that you want to choose quickly. There are a couple of things to take into consideration. Some of these factors include:
● Whether or not a company is familiar with builder’s risk insurance and has a strong history of issuing policies
● If the company is rated highly financially (aka will they pay their claims as promised)
● If the broker or consultant has an understanding of the construction business
● Your budget
And while these factors are important, there are also two things that you absolutely need to have sorted before taking out a policy–when you need coverage to start and your estimated project time.
Determine When Coverage Needs to Start
Before you can take out a policy, you need to figure out a timeline for your project, starting with when you need the coverage to begin. Having a start date can help you weed out any companies that require a long start-up window.
Estimate Length of Coverage Needed
Also included in the timeline is how long you estimate you need the coverage for. This can ultimately determine the price tag, so when you are thinking of the budget that you want to spend, you also need to have a window of time in mind. While construction projects often go over the estimated time, having this length of time will prevent any unexpected insurance costs.
Be Aware Of A Standard Policy Automatic Termination Terms And Conditions
One of the most confusing aspects of builder’s risk insurance is when coverage ends. In most policies, there are automatic termination terms and conditions that you need to be mindful of to ensure that you stay protected when you need it most. Every insurance company will word it differently, which is why it needs to be at the forefront of your mind from the very beginning.
Your coverage will usually end when one of these events occurs:
● Your policy expires
● A building is accepted by a purchaser
● You abandon the project
● The project has been completed for at least 30-90 days
Partial Occupancy Permit
While you have possession of a property, you’re likely to be given a partial occupancy permit by the local development authority. This gives you permission to occupy the premise while it is being built. Essentially this is given on major projects that are being developed in stages. In order to get this permit, you need to meet a few standards, such as clearance from the fire department, waste management areas, and sewage.
Work with an Insurance Broker
We understand that acquiring a partial occupancy permit and builder’s risk insurance may seem like foreign concepts for many–especially those who are unfamiliar with projects on that large of a scale. That’s why we recommend working with an insurance broker. They will ensure that you can obtain builder’s risk insurance and any other permits that you may need to complete a project successfully.
Find a Builders Risk Insurance Policy with Odell Studner
Whether you’re in the process of building your dream home from the ground up, renovating a fixer-upper, or you’re a seasoned contractor, it’s important that you’re insured with a builder’s risk insurance policy. While you could spend hours researching the topic and trying to find the perfect policy for you, here at Odell Studner, we want to make it as easy as possible. To get started and get protected, contact one of our brokers today!