A Guide to Builder’s Risk Insurance by Daigle & Travers, Darien, Connecticut (203) 655-6974
Builder’s risk insurance, also known as Course of Construction, is a type of policy that protects an insurable interest during construction, repair or renovation. During the process of construction, an owner, general contractor and subcontractor have invested labor, materials and funds into the project. If that property is damaged or destroyed before completion, these folks will have to take a financial loss. Builder’s risk insurance can help protect your investment, subject to the terms and limits of the policy.
What does a Builder’s Risk Policy cover? What is not covered?
This type of policy covers the building and insured area during construction, as well as the materials on-site waiting to be installed, the equipment being used in construction, and invested labor and deposits. For commercial buildings, loss of rental income can also be included. Damage occurring from events like lightening, hail, fire, theft or vandalism are typically covered, while loss from mechanical breakdown, employee theft, government action, water damage or contract penalty are usually not covered. A vital exclusion to note: damage resulting from defective design, planning, workmanship, and materials will not be covered.
Builder’s Risk Insurance Cost
A builder’s risk policy will often cost something in the neighborhood of one to four percent of the construction budget, though all policies are different and the cost of a policy for a particular project will vary depending on a variety of factors, including but not limited to the type and scope of project involved, the coverage and limits you select, the length of time that the policy will be in effect, and any exclusions listed on the policy. Typically, coverage terms are for three to twelve months.
The policy can be purchased by any or all of the contractors, owners and subcontractors, but that should be established ahead of the project if only one is going to carry a policy. The benefit of being the one to purchase the policy is that you will be the one who is contacted for changes in the policy, and you will receive any refund of unused premiums. That being said, the downside is that if a claim is made, the first named on the policy is responsible for the deductible. In some cases, it may be more prudent for each party to have their own policies as each party has different vested interests. As an example, the general contractor might have exposed risk for his labor, materials, and potential income and his coverage may only list those exposures. The owner of the property may have a higher exposure for rental income, which may not be covered under the limits of the policy purchased by a contractor.
Talk to your local insurance agent to figure out what options you may have with respect to different coverages and exclusions. From there, they can help you with determining the cost of builder’s risk insurance for your specific project.
Do I need builder’s risk insurance if I already have building and personal property coverage?
If a person or company has other properties, they likely have building and personal property coverage. Depending on the terms listed in the policy and the needs of the construction project, this may potentially be sufficient, but don’t assume so as it will depend on the particular wording of your policy and your individual situation. The building and personal property coverage will typically need to include a definition in the policy of “building” that includes future properties and buildings under construction. The insurer also has to be willing to add additional insureds (general contractors or subcontractors) to the policy. The coverage limits of the policy also have to be large enough to cover the cost exposure of the new project. The policy should cover soft costs as well as time elements (like loss of rent if construction is dragged out). You will have to scrutinize the fine print, or better yet, speak with an experienced insurance agent to discuss whether you have appropriate coverage and what options you may have.
All Risk Policy – coverage for all events except for ones specifically noted in the policy.
Specified Peril Policy – coverage for only the hazards listed in the policy.
Wrap-Up Policy – liability coverage for large projects, protecting all contractors and subcontractors.
Owners and Contractors Protection (OCP) – liability coverage for named insured for bodily injury or property damage caused by an independent contractor.
Installation Floater – coverage for contractors with a single specialty: plumber, electrician, HVAC, etc.
Do I need extensions of a Builder’s Risk Insurance?
Coverage can be extended for additional hazards for an extra fee. Common extensions include:
- Scaffolding, construction forms, and temporary structures
- Property in temporary storage off site or on site
- Payment for expenses to remove debris of insured property
Get the Coverage You Need
When constructing or remodeling a new home, Builder’s Risk Insurance can give you the coverage you need in protecting the materials and equipment during the building process. When looking for insurance, make sure you are clear about what coverages you need in your policy. If you feel that you are underinsured on your current policies—it may be time for a new agent.
Daigle and Travers is based in beautiful Darien, nestled between Stamford, Norwalk, and New Canaan. We also serve Fairfield County, Greenwich, Weston, Westport, Wilton, Ridgefield, Redding, Easton, Fairfield, Southport, Trumbull and parts of Westchester County and Long Island.
When partnering with Daigle and Travers, we will listen to your needs and will work diligently to provide you with information and options for quality, competitively priced insurance solutions that meet your requirements. Give us a call today at (203)-655-6974.