Course of construction insurance, also known as builder's risk insurance, provides coverage for damage to construction projects caused by weather, fire, vandalism, or theft. For example, let's say you are nearing completion of an apartment building but vandals break in and pull the fire sprinklers, flooding the building. Having to pay out of pocket for all the repairs and delays could potentially ruin the project and your business; that's where builder's risk insurance comes into play.
Who Needs Coverage?
Builder's risk insurance is encouraged for anyone with a financial interest in a property being built or renovated. This includes but is not limited to:
- Building owners
- Architects or engineers involved with the project
- Contractors or subcontractors
- Electricians
- Carpenters
It's common for multiple parties to invest in a construction project together. In these cases, typically the general contractor will purchase insurance and act as the primary insured. The building owner(s) and subcontractors will be listed as additional insureds. Depending on what the contract says, building owners may have to purchase the policy themselves.
What Does Coverage Look Like?
Builder's risk insurance covers the property on construction sites when they're damaged or destroyed by fire, weather, vandalism, vehicle collisions, or other accidents. However, some policies may cover construction materials stored off site or cleanup costs like debris removal.
There is no standard template for what your specific builder's risk policy will cover, which can vary greatly compared to other forms of business insurance. Factors like materials, labor, number of employees, coverage options (all-risk or named perils), and deductible and coverage limits can all affect your coverage. All providers will have different policies so it's important to be familiar with what your coverage applies to.
Here's what to look for when choosing your coverage:
Materials that can be covered:
All policies will typically cover the building that is being constructed or renovated and may also cover materials that are stored on or off site that are damaged or lost in transit to the site.
Other covered costs in case of property damage:
When your site experiences physical damage or loss, you can be reimbursed for the protective measures that you take as a result of the damage. This can include anything from debris removal to pollutant cleanup. In some cases where you're repairing a building that had previously received green energy certifications, your policy may also provide coverage for recertification fees.
Potential Exclusions:
Typically, most coverage provides ‘all risk' coverage which means that they will cover all property damage caused by anything except for what is specifically excluded from the policy. Some causes of loss that are often excluded include:
- Employee theft
- Work vehicles
- Damage from earthquakes and flooding
- Manufacturing defects or flaws in workmanship/design
- Ordinary wear and tear
Some policies may also exclude any damage that occurs after a project is completed. Typically, once the construction is completed, coverage ends. When it ends, other similar insurance options may be available, such as:
How Long Does Coverage Last?
Builder's risk insurance will only cover work that is in progress and is only a temporary protection. However, it's also possible to carry coverage for too long, which can lead to other costs you aren't anticipating. It's important to read over the terms to make sure that the policy reflects the time that will be spent on the project. Here are some typical terms policies include regarding duration:
- Most policies will start on the date that you have signed all contracts to complete the work. This can potentially be a different day than when you start actual construction, which can add extra costs but also extra protections from the get go.
- Some policies specify the timing when coverage (in-part or in-full) will become active. Pay special attention to these dates.
- Other policies will terminate automatically. However, the terms on when they stop may vary. Some end on predetermined dates, while others may be more flexible and may last up until the keys are handed over to the owner.
On some occasions, you may or may not have to let your insurance provider know when work is completed. However, making sure that you are in position to transition to full property coverage or other similar policies is important and is something your insurance agent can assist with.
How Much Does Coverage Cost?
On average, the cost of a builder's risk policy accounts for 1%-5% of a business's total construction budget. For example, if a project budget is $100,00 and your policy is scheduled for 3 months of coverage, your monthly premiums might be anywhere from $300/mo to $1300/mo.
In addition to the factors listed previously in this article, some other aspects could affect your premiums, such as:
- Cost of the project
- Location of the project
- Timeline of the project
- Square footage of the construction site
- Expertise and experience of the contractors and subcontractors who will be in charge of the project
- Amount of coverage
- Quality of materials used in the construction
- Logistics of the project, such as where materials are stored
Calculating your construction budget carefully is important before purchasing coverage. Keep in mind the total value of the building (excluding the land value), material costs, and labor costs. Depending on the add-on coverage you may have to purchase, the soft costs of potential delays or other issues should be considered as well.
Is a course of construction or builder's risk coverage right for you and your company? Chat with an Aegis insurance agent today and find out how your business could potentially benefit from insurance coverage.