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Builder's Risk Insurance: Everything Developers Need to Know About This Essential Coverage


As a developer, you know that construction projects are complex and risky. You have to deal with many challenges, such as weather, permits, contractors, suppliers, and deadlines. You also have to invest a lot of money and time into your project.


But what if something goes wrong? What if a fire breaks out on your site and destroys your building? What if a storm damages your materials and equipment? What if a thief steals your tools and supplies? What if a lawsuit delays your project and costs you extra fees and taxes? These are not hypothetical scenarios. They are real risks that can happen to any construction project. And they can ruin your budget, schedule, and reputation.

That’s why you need builder’s risk insurance.


What is builder’s risk insurance?

Builder’s risk insurance is a special type of property insurance that covers your building and materials during the construction or renovation process. It protects you from financial losses caused by unexpected events that damage or destroy your property. Builder’s risk insurance also covers the additional expenses that you may incur due to delays or disruptions in your project. These include lost sales, rental income, interest on loans, and real estate taxes. Builder’s risk is not a luxury, It’s a necessity: without it, you could face huge losses that could jeopardize your project and your business.


Who needs builder’s risk insurance?

Builder’s risk insurance is essential for anyone who has a financial stake in the construction project. This includes:

  • The property owner

  • The general contractor

  • The subcontractors

  • The lender

  • The architect or engineer

All these parties should be listed as insureds on the policy. This way, they can share the benefits and responsibilities of the coverage. Depending on the contract terms, the policy can be purchased by either the owner or the contractor. But whoever buys it should make sure that it meets the requirements and expectations of all parties involved.


Why do you need builder’s risk insurance?

You may think that you don’t need builder’s risk insurance because you already have other types of insurance, such as general liability or workers’ compensation. But these policies do not cover the same risks as builder’s risk insurance. General liability insurance covers bodily injury and property damage claims from third parties, such as customers or visitors. It does not cover damage to your own property or materials. Workers’ compensation insurance covers medical expenses and lost wages for employees who get injured on the job. It does not cover damage to your own property or materials.


Only builder’s risk insurance covers your building and materials during the construction or renovation process. It protects you from losses caused by fire, wind, vandalism, theft, and other perils. Moreover, builder’s risk may be required by law or contract to start or continue your project. Some local codes and regulations may require you to show proof of builder’s risk insurance before issuing permits or inspections 1. Some contracts may require you to have builder’s risk insurance as a condition for payment or completion 2. If you don’t have builder’s risk when it is required, you may face fines, penalties, delays, or lawsuits and may also lose your reputation and credibility as a developer.


What does builder’s risk insurance cover?

Builder’s risk insurance covers a wide range of perils that can affect your construction project. Some of the most common ones are:

  • Fire

  • Lightning

  • Hail

  • Explosion

  • Theft

  • Vandalism

  • Vehicle collision

  • Acts of God, like hurricanes

These perils can cause severe damage or loss to your property and materials on the construction site, as well as those in transit or stored elsewhere. Other coverages include the soft costs that you may face due to delays or disruptions in your project. These include:

  • Lost sales

  • Rental income

  • Interest on loans

  • Real estate taxes

These costs can add up quickly and eat into your profit margin.


What does builder’s risk insurance not cover?

Builder’s risk insurance does not cover everything. There are some exclusions that you should be aware of. For example:

  • Wear and tear

  • Acts of terrorism or war

  • Employee theft

  • Rust and corrosion

  • Mechanical breakdowns

  • Damage due to faulty design, workmanship, or materials

Some of these exclusions may be covered by other types of insurance, such as general liability, professional liability, or workers’ compensation. You should also know that builder’s risk insurance is not permanent. It only lasts for the duration of the construction project; once the project is completed or occupied, the coverage ends.


How much does builder’s risk insurance cost?

The cost of builder’s risk insurance depends on several factors, such as:

  • The construction materials

  • The type of project

  • The policy details, like coverage limits and deductibles

The more expensive and risky your project is, the more you will pay for builder’s risk insurance. A general rule of thumb is to choose coverage limits that are equal to the total cost of construction. This way, you can ensure that you have enough coverage to rebuild your property in case of a total loss. The deductible is the amount that you have to pay out of pocket before the insurance pays for the rest. A higher deductible can lower your premium, but it also increases your financial exposure. The average cost of builder’s risk insurance ranges from 1% to 4% of the construction cost. For example, if your project costs $1 million, you can expect to pay between $10,000 and $40,000 for builder’s risk.


How to get builder’s risk insurance?

To get builder’s risk insurance, you need to contact an insurance provider that specializes in this type of coverage. You can submit your details online using our Quote Now and we will find an insurance company using our online platform that connects you with multiple insurers.


You will need to provide some information about your project, such as:

  • The location and size of the property

  • The type and scope of the work

  • The estimated start and completion dates

  • The budget and financing sources

  • The names and roles of all parties involved

You will also need to review the policy terms and conditions carefully and make sure you understand what is covered and what is not. You may need to add extensions or endorsements to customize your policy according to your specific risks.


Conclusion

Don't wait; get builder's risk insurance today. Builder’s risk is not an option, It’s a must-have for any developer who wants to protect their investment and their reputation. Don’t let unexpected events ruin your construction project, get builder’s risk insurance today and enjoy peace of mind.


I hope you enjoyed reading this article and learned something new. To find out more about the best builder's risk insurance options, contact Alex Insurance Agency 407-847-2539 or use our online Quote Now platform. We can help you compare quotes from different providers and customize a policy that suits your budget and goals. If you have any questions or comments, please feel free to leave them below. Thank you for your attention and have a great day!


  • What Is Builder’s Risk Insurance? | The Hartford. (n.d.). Retrieved May 22, 2023, from https://www.thehartford.com/insights/construction/builders-risk-insurance

  • Builder’s Risk Insurance: How It Works, Costs and Best Providers - NerdWallet. (2023, January 12). Retrieved May 22, 2023, from https://www.nerdwallet.com/article/small-business/builders-risk-insurance

  • Builder’s risk insurance - Wikipedia. (n.d.). Retrieved May 22, 2023, from https://en.wikipedia.org/wiki/Builder's_risk_insurance

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