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Who Pays for Builder’s Risk Insurance in 2022?

What Is Builder’s Risk Insurance?

Builder’s risk insurance is an insurance policy that covers property and construction materials, including tools and equipment, during the construction phase. 

Builder’s risk insurance is also a type of construction insurance, as it covers damage to the portion of the project that is already completed while the construction project is in progress. 

The property owners or the general contractors can purchase this policy to get coverage against property damage against fire, wind, storm, or vandalism.

In this article, we will get an in-depth understanding of builder’s risk insurance, what is protected, and who can opt for it. 

What Is Protected in a Builder’s Risk Policy?

Builder’s risk insurance policy varies widely from one insurance company to another. It is advised to read the insurer’s quote carefully to ensure you get the right coverage for your business. Typically, this type of insurance policy covers construction contract sites when they are damaged by floods, fire, winds, earthquakes, vandalism, or similar incidents.

The policy includes terms and covers materials that are debarred from general liabilities insurance. Insurance brokers usually advise small businesses to invest comprehensively in a builder’s risk, workers’ compensation, and general liability insurance bundle to avail the maximum coverage.

It covers all the parties involved in the construction project including:

  • property owners
  • subcontractors 
  • general contractors
  • funding parties and stakeholders

Property Damage

Builder’s risk insurance coverage allows you to resume work on the construction site, should the property suffer natural calamities or manmade disasters that have destroyed the developed portion of the site. 

In general, the insurance policy covers damage from fire, storm, wind, fungi, or other natural catastrophes that are beyond human control. 

External Water Damage

Construction insurance covers property damage caused by rainstorms, windstorms, hailstorms, and similar incidents when the construction is in progress.

It provides extensive protection from storms and other forms of weather damage such as floods and hurricanes. However, internal water damage is an exclusion as it may be the case of gross negligence.

Vandalism

Construction material such as building tools, heavy machinery, expensive copper wire gauge, and other items are expensive and can be stolen from the construction site during the course of construction. 

When the construction site is the victim of vandalism or any other antisocial practices, builder’s risk insurance has you covered. This type of insurance not only provides protection from vandalism but also theft attempts. 

Who Does Builder’s Risk Insurance Cover?

Builder’s risk coverage includes everyone who has something to lose on the construction site, be it a construction company, independent contractor, subcontractor, property owner, or a small vendor. 

All parties must be named insured on the policy and must be issued the certificate of insurance. Make sure that all the parties involved in the construction business or have invested in the project are covered against bodily injury and commercial property insurance during the course of construction. 

General Contractors

GCs are one of the two parties who pay for builders’ risk insurance before the beginning of the construction project. The general contractors are responsible for handling builders’ risk policy and pay for deductibles as and when required. 

Although both the building owner and the general contractor are responsible for their share of responsibilities, the risk share of the general contractor is the largest of all parties on the builder’s risk insurance as it handles everything from building budget reports to managing subcontractors to handling payments. 

Project Owners

Similar to general contractors, the project owner also has a huge interest in protecting the construction site from any kind of internal or external dangers. A lack of insurable interest can raise the risks of financial loss as the project owner will have to bear the gross liability. 

The project owner partners with the general contractor to pay for business insurance, and gets overall coverage to protect the property against loss. If the general contractor has not purchased the policy, the project owner is deemed liable for purchasing the policy. 

Subcontractors

Subcontractors may hold little insurable interest, but they need to be included as insured in the builder’s risk policy. If the completed construction portion on the construction site is damaged due to any aforesaid reason, the subcontractors—including HVAC professionals, electricians, plumbers, and pipefitters—will be among the first few people to be called upon. 

Builder’s risk policy can cover damage or any financial loss in cases of an accident resulting in physical injury or property damage. It will also include wage compensation, medical fees, and other relevant expenses that the property owner or the contractors will otherwise pay from their pocket. 

Property Owners

Needless to mention, property owners will have a huge share of interest in protecting the property in the event of fire, floods, rainfalls, and hailstorms, to name a few. Sometimes the responsibilities and the role of property owners are the same as project owners, while sometimes not.

Homeowners are the property owners when the project is within a residential area. They are liable to purchase builder’s risk insurance policy when the contractor or the project owner has not purchased one. The homeowners are responsible for taking the biggest risk and thus need the largest share of the builders’ risk policy.

Exclusions in Builder’s Risk Insurance

Although all the parties sharing the common interest of protecting the construction site must be named as insured on the certificate of insurance, certain parties, such as employees, are excluded. 

The types of damages that are not insured in the builder’s risk insurance include:

  • Water damage: When the loss is due to the improper fitting of wires, resulting in leakages in the newly developed building. 
  • Employee theft: When employees working at the construction site are deemed responsible for stealing construction articles. 
  • Defects from workmanship flaws: When the defect in the already-built portion on the construction site is due to the negligence of the craftsman. 
  • Intentional damage: When there is a risk of intentional damage such as stealing or breaking the construction material. 

How Much Does Builder’s Risk Insurance Cost?

Builder’s risk insurance cost is affected by the amount, type of project, number of exclusions, and term of the policy. The policy covers damage due to catastrophes such as fire, floods, theft, earthquake, mechanical breakdown, explosion, weather damage, or similar events.

Several insurance policies provide coverage against vandalism and debris removal and such services affect the cost of the policy. 

The follow are factors that affect the cost of a policy:

  • Construction project costs
  • Construction project location
  • Construction project timeline
  • Size of the job site
  • Experience of subcontractors and labor costs
  • Coverage limits
  • Building materials

You should attentively evaluate your overall construction budget prior to getting a quote for builder’s risk insurance. Depending on the terms of the policy and add-on features you buy, you can calculate the comprehensive coverage limits

Acquire Your Builder’s Risk Policy Through Contractors Liability

Builder’s risk insurance prevents property owners and general contractors from spending out of pocket in case of damages that occurred on the construction site when a project is in progress. 

Do you need a builder’s risk policy for a new construction project? Contractor’s Liability expert insurance agents are ready to answer all your queries. Call (866) 225-1950 (English) or (888) 245-0633 (Espanol) to schedule an appointment to discuss cost estimates and get a free quote.

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Written by: John Brown
John has more than 25 years of experience in the insurance industry. He grew from a star insurance producer to owning one of the largest agencies in the country; he's a reference regarding contractor's insurance, commercial insurance, and builders' risk insurance.