Builder’s risk coverage protects contractors and homeowners in case of an unfortunate circumstance causing loss, destruction, or damage during constructions, renovations, or repairs. This policy reimburses your business for building materials and rehabilitation costs.
Suppose you’re building a client’s home. You’ve framed the structure and laid out most of the lumber, steel, tiling, and nails to construct the building.
That evening, a significant rain and wind storm erupts in the city. You return the following day to find that the storm destroyed the framing and portions of your materials.
In this case, builder’s risk insurance reimburses your losses caused by the storm. It pays to manage repair costs and replace the damaged and destroyed lumber, steel, tiles, etc. As a result, you’re not making repairs for free or buying additional materials out-of-pocket. You also won’t need to fight with your client over who’s liable for the losses.
This article details builder’s risk insurance and what it does and doesn’t cover. It also illustrates the parties who should purchase a policy and how much it might cost.
What is builder’s risk insurance?
Builder’s risk is a form of property insurance. It protects buildings under construction, renovation, or repair and fills the gap when home insurance excludes houses under construction or renovation. It’s also a way for contractors to protect themselves.
As a contractor, you should purchase a builder’s risk policy whenever you have a new client project. Thus, a fire or storm that damages construction doesn’t leave you in a financial shortfall. A builder’ risk policy can pay for the following:
- Repairs
- Damaged, destroyed, or stolen building materials
- Debris removal
- Related legal fees or architectural costs
Protection lasts from the moment you begin the project until it’s fully completed. Afterwards, your client’s building insurance should take over.
Unlike your liability or contents protection, you don’t purchase builder’s risk insurance on an annual or monthly basis. Instead, you provide an estimated timeline and pay a premium based on it. Extensions may require further premiums.
Many insurance companies won’t provide a policy once construction is underway. However, some specialty insurers can still help if you’ve already begun construction — just don’t expect to save on premiums or back-date coverage claims in this situation.
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What does builder’s risk insurance cover?
You can usually expect builder’s risk insurance to cover the following:
- Bad weather: Incidents like strong winds might knock framing or destroy your hard work. It could also damage building material and render it unusable. Builder’s risk insurance can absorb this cost and compensate for rebuilding and materials.
- Theft: Thieves might gain access to a construction site during off-hours. They could steal building materials and other valuables.
- Vandalism: Your project site isn’t only susceptible to thieves. Vandals might also trespass and cause damage to work and materials. For example, trespassers may spray paint framing or trash it. Builder’s risk can compensate for the repair damages.
- Fire: A fire might break out from surrounding areas or due to construction. This could quickly destroy most of the work, as significant portions of a home construction or renovation consist of flammable materials.
What does a builder’s risk policy not cover?
Generally, a builder’s risk policy won’t cover the following items or situations:
- Equipment or tools left at the job site: Contents insurance covers your tools. So, builder’s risk doesn’t generally cover the loss or destruction of equipment or an equipment’s mechanical breakdowns.
- Losses occurring before or after construction begins: Suppose you lose the building materials for a project in a fire. A builder’s risk policy doesn’t protect the materials because the project didn’t begin. Similarly, after construction completes, it’s also out of the scope of the policy.
- Faulty design: If loss, damage, or destruction was due to negligence or an error, it’s out of the builder’s risk policy’s scope. Often, professional liability insurance pays for these damages.
Who needs builder’s risk insurance?
You should purchase builder’s risk insurance if you’re building a new home or renovating or repairing an old one. This applies to both do-it-yourself homeowners and professional contractors.
Contractors have other insurance policies like contents or liability insurance. However, this insurance doesn’t cover the situation where work is damaged or vandalized or where someone steals or something destroys building materials. The lack of proper insurance means replacement costs come out of your own pocket.
How much coverage should I purchase and how much will it cost?
Speaking with an insurance agent can help assess the amount of coverage you need for each construction job — whether it’s a kitchen redo or home construction. Insurers consider your coverage amount, in addition, to the project schedule, estimated costs, location, and your business’ details to determine your premiums.
Related: How much does builder insurance cost?
Get a quote and purchase builder’s risk insurance online with APOLLO. Our online portal provides affordable insurance options from Canada’s top insurance companies. You can get a quote, purchase, and bind a policy in under five minutes. The best part? It’s all available from any device, anywhere, and at any time.
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