How Much Does Builders Risk Insurance Cost?
Builders risk insurance is similar to a commercial insurance policy more than a personal homeowner’s policy because it covers a business venture. This coverage usually lasts 3, 6, or 12 months, and one can typically extend this term at least once in case the building is not yet completed. The policy ends when the building is occupied or completed.
How much is it?
- On average, the cost of a builder’s risk insurance ranges from 1% to 5% of the total construction budget. The exact cost depends on the level of coverage you need as well as the insurance company you use.
- According to TheNest.com, the average cost of this policy is about 3 percent of the estimated project cost.
- TrustedChoice.com notes that the average policy is going to cost about one to three percent of the project total.
What is going to be included?
- Builder’s risk insurance, sometimes known as “Course of Construction” policy, is a form of property insurance that covers buildings that are under construction, renovation, or repair as well as all the equipment and materials used in the project. It is designed for protecting the owner of the property and the contractor from loss of property on a building or a number of buildings under construction. The coverage can be particularly important in case you are working with materials prone to damage, or when working in a region prone to certain kinds of severe weather conditions. Typically, you will need to purchase coverage for 100% of the anticipated construction costs.
- The builders risk insurance coverage can be structured to cover property damage, theft of building materials, labor costs and earned profits, natural and man-made disasters, as well as other damages such as negligent workmanship, flawed design, or materials.
- Like all other insurance policies, builders risk insurance has exclusions, typically things like war, contract penalty, many natural disasters, voluntary parting, and the arbitrary government changes that result from a change of policy or government. This is mainly because the coverage is intended for covering unexpected and accidental events. Also excluded are damages done as a result of faulty design, planning, construction, workmanship or materials. Other items that will not be included can be vehicles, portions of an existing project, and tools.
- The policy is set for a certain duration, which is usually up to a year. If the project is still under construction when the policy expires, it can be renewed again. Typical durations can last three, six or twelve months.
What are the extra costs?
- Some builder’s risk covers include soft costs. These are expenses or reduced income resulting from delay in the completion of a project and include costs such as interest charges on project financing, workers overtime, advertising and promotion, realty taxes or other assessments, costs associated with lease renegotiations as well as accounting, architectural, engineering or legal fees. Soft costs may be built in the insurance premiums, in which case the price will be higher, or added and charged as an additional premium.
- If the policy has to be renewed, additional costs have to be considered.
- Builders risk insurance will not cover injuries on the job site. To cover accidents, a separate liability policy will have to be purchased.
Tips to know:
- Normally, builders risk insurance contract specifies the owner of property, the contractor, as well as any sub-contractors to be insured. Whether the owner or the contractor will be the one responsible for obtaining the insurance cover will depend on the contract. In case the contractor is the one responsible for obtaining the insurance policy, it can be added to the contractual cost. To ensure that the policy terms and limits are suitable, the contractor and brokers need to review the building contract, construction schedules, financing agreements, and other related documents.
- If this is the first time that you as the property owner have been in this position, it would be best to find a contractor that will take care of the builders’ risk insurance for you. This company should already have plenty of experience with this type of insurance and most likely already has a company with which they work on a regular basis.
- When choosing a policy, make sure that you find out how fast they will pay out claims. If you are on a construction timeline, a slow payment process can slow down the job.
How can I save money?
- You should work with a professional commercial insurance broker or agent experienced in setting up builders risk insurance to get the amount and type of builders risk coverage you need at the most affordable rate.
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