What is Builder's Risk Insurance?

Builder's risk insurance, often referred to as course of construction insurance in some places, is a special type of property insurance. This type of insurance covers a building where the building or insured area is currently being constructed. Most owners will need every contractor to carry this insurance, which can only cover the structure or the materials already present and waiting to be installed or brought to the construction site.

As long as the coverage maximum is met, damages are covered by the builder's risk insurance policy. However, the maximum must represent the structure's completed worth fairly (all materials and labor costs, excluding land value). The best place to find the right insurance limit is the building budget.

What does Builder's Risk Insurance cover?

Most policies will cover damage from the following events:

  • Fire
  • Wind (may be limited in coastal areas)
  • Theft
  • Lightning
  • Hail
  • Explosion
  • Vandalism
  • Vehicles or aircraft

Why is Builder's Risk Insurance important?

A builder's risk insurance policy aids in preventing some property damage to your construction projects. If property damage results in a delay, it might also aid in covering additional soft expenditures or expenses unrelated to construction. This may consist of the following:

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

Because every construction project is unique, each builder's risk policy is different. You can customize your policy to fit your project's needs by getting coverage extensions.

How does Builder's Risk Insurance differ from contractor's general liability insurance?

This is where confusion often arises. For example, a contractor might ask: 'Why do I need builder's risk insurance when I have contractor's general liability insurance?' While, on the surface, the two coverages may seem similar, they play very different (but equally important) roles.

While builder's risk insurance covers the contractor's property or equipment during construction, the contractor's general liability insurance policy covers bodily injury, property damage, and any resulting liability that may arise from possible accidents. In addition, it protects contractors if they're accused of causing injury or property damage.

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