Everything You Need To Know About Builders Risk Policy
TLTR: This article explains what a builders risk policy is, who needs it, what it covers, what it excludes, its terms of policy, and how much it costs.
No matter how well prepared an individual or a business might think they are, disaster can strike at any moment. Construction sites are especially vulnerable to everything from weather damage to vandalism and theft.
According to the Insurance Information Institute (III), in 2019, California had the largest amount of earthquake premiums amounting to a staggering $2.1 billion. It accounted for almost 60% of the total earthquake insurance premiums issued. So, if you want to keep buildings that are under construction financially protected, getting this policy is a must.
In this blog
What is builders risk policy?
Also known as “course of construction insurance,” builders risk policy is a specific type of commercial property insurance. It helps financially protect a building or an area around a building that is under construction. This policy includes the contractor’s property, equipment, machinery, materials, etc.
Who needs a builders risk policy?
If you or your company are planning on or are actively constructing infrastructure for your business, you can sign up for a business owners policy. Furthermore, research from the International Journal of Professional Management notes that well-built infrastructure stimulates the growth of a business by eliminating delays, removing bottlenecks, and establishing opportunities that facilitate entrepreneurial activities.
The policy pays for any physical damage that might occur on the site up to the coverage limit.
As long as the policyholder has an insurable risk and an insurable interest in the property, owners of the project, subcontractors, and lenders can all take out a business risk policy.
In some states, it may be necessary to show proof that the building is insured to comply with the local city or county codes. Furthermore, it is also often mandatory to have a builders risk policy as a contract condition.
You can buy this policy policy if you are a:
- Home or property owner
- Retail company
- House flipper
- Investment company
What does a builders risk policy cover?
The policy covers both the building structure and the materials used to construct the structure. Coverage also extends to supplies and equipment in transit or at a different location. In the event of any type of property loss due to a covered peril, the policy will bear the financial coverage of the damage.
The policy helps to safeguard construction projects from the following perils:
- Hurricanes and other natural calamities
Builders risk policy helps protect construction projects against various forms of physical property damage. But some insurance companies also help cover miscellaneous soft costs or expenses that are not directly related to construction if property damage causes a delay. These soft expenses include:
- Rental income
- Real estate taxes
- Lost sales
The insureds will, however, need to ask the insurance company to include these soft costs in their coverage. Doing this might also increase the overall cost of the policy.
What are the exclusions of builders risk policy?
First off, it’s important to understand what your builders risk policy covers. So, reading up on your policy should be a priority. And it’s a good idea to familiarize yourself with insurance terms to optimize your understanding..
Each construction project is unique. So, different projects can have different policy exclusions. Two common items that are often excluded in builders risk policies are damages caused by earthquakes and floods. However, you might be able to get coverage on these for additional fees.
Be sure to consult with your insurance agent regarding what your policy will cover. To sum up, they can assess your situation and be of great help in suggesting any additional coverage that you might need.
Other standard exclusions of builders risk policy include:
- War and acts of terrorism
- Damage caused by rust and corrosion
- Damage as a result of faulty design
- Theft from employees
- Wear and tear
- Bad planning
What are the terms of the policy?
Builders risk policy is issued in term periods of three, six, or 12 months. Therefore, if the construction project isn’t completed by the end of the initial term period, a maximum of one extension can be requested. So, it is important to check with your insurance agent to find out what policy terms your insurance company provides.
How much do builders risk policies cost?
The premium for your policy will vary according to the type of coverage and its exclusions. The policy usually ranges up to 1% to 4% of the entire construction cost. Therefore on average, you might need to pay around $200 per month if it’s a small construction project. But the rates can go up to an average of $2,000 for larger construction projects.
To sum up
Construction sites are especially vulnerable to perils like weather damage, theft and vandalism, fires, etc. So, having this policy in place significantly helps the insured keep their property financially covered.
Since every construction project is different, the range of the business risk policy will also vary. Hence, it is important to consult with a good insurance agent to help find the right policy for you. They can accurately assess your situation and help find the perfect policy for you.
So, find an agent to help you get started!
Did you find this blog helpful? Let us know in the comments below.
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