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Builder’s risk insurance provides property coverage for buildings and structures that are under construction. If you’re a builder or a commercial property owner, you could face considerable monetary loss if something goes wrong with the construction of a building if you don’t have builder’s risk insurance.

This coverage is also known as “course of construction insurance.”

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What Builder’s Risk Insurance Covers

Builder’s risk insurance protects against fire, wind, theft and vandalism during the construction process. It also protects against lightning, hail, explosions and hurricanes. Here’s a look at all the things a builder’s risk insurance policy covers.

A builder’s risk policy may cover:

  • Buildings and structures that are under construction, including temporary storage buildings, fencing and scaffolding
  • Equipment, such as repair of damaged equipment, as long as the equipment is covered under the policy
  • Materials and supplies being used
  • Constructions signs, trees and plants

The Cost of Builder’s Risk Insurance

The total estimated cost of the completed building or structure will help determine the cost of a builder’s risk policy. So have the total cost of a building in mind when you begin shopping for insurance. Shop several insurance companies to find the best price for the insurance coverage that you want.

With a builder’s risk insurance policy, the cost of the policy also depends on the construction materials, type of project and policy details such as the coverage amounts and limits. It is a good idea to choose coverage limits that are equal to the estimated costs of construction.

Builder’s risk policies are available for new construction projects, remodeling and installation work. Projects are classified as either commercial or residential risks.

Exact coverage and policy limitations will vary among insurance providers. So be sure to shop around for both coverage and price.

Construction projects don’t always stay on schedule. Here are some other costs
that you may incur if there’s a delay in construction:

  • Additional interest on loans
  • Lost sales income
  • Real estate taxes
  • Rental income

These additional costs can also be covered with builder’s risk insurance policies.

To customize a builder’s risk insurance policy, you can add policy endorsements such as:

  • Forms needed for construction
  • Debris removal and disposal costs related to a claim

Endorsements allow you to create the specific type of builder’s risk insurance policy that best fits your policy needs. Consider endorsements carefully and choose the ones that make the most sense for your project.

Who Should Buy Builder’s Risk Insurance

Types of people and business who can benefit from builder’s risk insurance include:

  • Architects
  • Builders
  • Development and investment companies
  • General contractors
  • Lenders
  • Subcontractors

What’s Not Included

Not everything is covered with builder’s risk insurance. For example, earthquakes and floods are generally not covered. Here’s a short roundup of other common exclusions:

  • Acts of terrorism and war
  • Damage due to a faulty design
  • Employee theft
  • Mechanical breakdowns
  • Rust and corrosion
  • Wear and tear

Be sure to make note of a policy’s exclusions before buying it. You want to be aware of what costs you’ll be paying if the worst happens and exclusions reduce the coverage you thought you had.

Make Note of the Policy End Date

Be sure to know when a policy ends. The policy may reach its end when:

  • The policy expires or is canceled
  • The building is done and becomes occupied
  • The building is being used for its intended use

Builder’s Risk Insurance vs. General Liability Insurance for Contractors

General liability insurance for contractors does not cover a contractor’s property. You’ll need a builder’s risk insurance policy.

A general liability insurance policy offers coverage if you are responsible for causing injury or property damage to someone else. It also pays associated legal fees.

As for damages, general liability insurance for contractors protects against fire and explosions that causes damage to someone else.

A general liability insurance policy for contractors will typically cover:

  • A person getting injured on your property
  • A commercial space getting damaged
  • You or an employee causing injury or property damage
  • You getting sued for false advertising, libel or slander

For those in the construction business, having both builder’s risk and liability insurance is a smart move.

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