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What is builders' risk insurance?
Builder's risk insurance is a policy that provides coverage for buildings while under construction (AKA “Construction Insurance”). It covers the contractor’s interest in materials at the job site before they are installed, materials in transit intended for the job, and the value of the property being constructed until it is completed and accepted by the owner. The policy may be written to cover the whole structure for new construction or the cost of remodeling and renovation projects. It can also be used to cover specific projects, such as a new room addition, a deck, or a remodeled bathroom.
Both commercial and residential construction sites may be covered under a builder's risk insurance policy.
Who is the named insured on a builders’ risk policy?
Builder's risk insurance usually is in the name of the contractor or the property developer, but it could also be in the name of the property owner if he is responsible for insuring it while the property is under construction.
When multiple parties go in on a construction project together, the general contractor will usually purchase the builder’s risk policy and act as the primary insured. The building owner and subcontractors will be listed as additional insureds. However, depending on what the construction contract says, the building owner might have to purchase the policy
Who needs a builders’ risk policy?
A builder's risk insurance policy is essential for people who have a financial interest in property construction, either commercial or residential. It doesn't mean only new construction, but also any remodeling or renovation project.
If any damage to construction material occurs in transit or during storage, then this cost could also be covered under a builder's risk insurance policy.
What does builders’ risk insurance cover?
Builder's risk covers perils such as fire, wind, theft and vandalism and many more. It typically does not cover perils such as earthquake, flood or hurricane damage unless the policy has been specifically endorsed to do so.
These policies also do not cover accidents and injuries at the workplace and is intended to terminate when the work has been completed and the property is ready for use or occupancy. If you are going to properly setup your policy, coverage should be effective prior to when the materials are delivered to the job site. Coverage ends upon the earlier of closing of the sale, occupancy or the policy expiration date. After builder risk coverage expires, due to sale or occupancy, the new owner should take out permanent property insurance on the building such as a home owner's policy or a commercial property policy.
How much does a builders’ risk policy cost?
Insurance costs generally run between one and four percent of the construction cost, depending upon the type of insurance purchased and exclusions from coverage.
Disclaimer: The analysis of coverage is in general terms and is superseded in all respects by the Insuring Agreements, Endorsements, Exclusions, Terms and Conditions of the Policy. Some of the coverage mentioned in this material may not be applicable in all states or may have to be modified to conform to applicable state law. Some coverages may have been eliminated or modified since the publishing of this material. Please check with your local Independent Insurance Agent for details.