You know that no two projects are ever the same. Which is why there is no standard builders risk (course of construction) policy… and no easy formula for determining your policy costs. You can, however, have a good understanding of what your insurance provider is looking at when they calculate the risk factors of your project, and what exactly goes into your policy price.
Here are some of the factors which may be used to determine your builders risk insurance costs:
Which Parties will be Insured?
The builders risk coverage for a project is generally obtained by the owner/ developer or general contractor. In addition to providing coverage for the general contractor and owner, the policy should also cover any subcontractors (this eliminates the need for waivers of subrogation between contractors and subs). Any person whose materials, supplies, and time is going into the project has a valid insured interest, and is most likely to be listed. If there is a loan issued, the Bank may also be listed as an Insured Party on the policy.
Did you know? If one of the parties listed on the policy has filed bankruptcy in the last 10 years, it may have an affect on the policy costs.
What Property will Your Builders Risk Insurance Cover?
A builders risk policy is a very unique type of property insurance, so it should be no surprise to hear that property is a big consideration for the policy costs. Whether the project is new construction or a renovation on an existing structure, and even the size and square foot of your project scope can factor into your overall costs.
The “property” considerations that can affect your policy costs include:
What is the value of any existing structures? Many policies provide actual cash value coverage for the existing buildings, and replacement cost coverage may increase your policy costs. Other risks that may increase your costs include existing structures with a value more than double the value of the new work.
Insuring your property on a new construction project may include coverage for foundations, site preparation, excavation, underground pipes, and temporary structures.
Your policy may cover materials such as fixtures, supplies, and even tools and equipment. The actual materials you are using on the project can have an affect on your overall policy costs. Your costs may increase, for example, if you are using unconventional materials and supplies, such as earthen materials, fabric structures, or wooden frames rather than steel.
What about the materials that haven’t arrived to your project site yet? Additional coverage for your builders risk policy can protect materials in transit, or even materials stored off-site. If a fire breaks out in the storage facility where your materials are stored, or if they are damaged on their way to the project site, this additional coverage will be worthwhile. Additional protection for off-site property will factor into your overall policy costs.
Which Perils will Your Policy Insure Against?
What’s covered in your builders risk policy? Most policies are written on an “all risk” basis, which means anything is covered unless it is specifically excluded in your policy. However, some of the more common exclusions on a policy can be added in as supplemental coverage. So your policy costs may change depending on whether or not you add items such as Earthquake Coverage or Flood Coverage for your project.
Does Your Builders Risk Insurance Include Soft Costs?
If your project was delayed due to a covered peril, the cost of covering your “property” is only the part of the picture. There may be a risk of economic losses from the resulting delay, such as the costs of keeping workers on site, extended equipment rentals, increases in labor wages, or even additional storage costs. If you want to ensure against economic losses from a project delay, you may need to add a “soft cost” endorsement to your builders risk policy. Adding this endorsement to your policy can increase your overall costs.
Additional Factors that Determine Builders Risk Insurance Costs
We’ve covered your basics, such as the parties, property, and perils insured on your policy. What else is considered when calculating your policy costs?
- Time Elements: How long will the term be on your policy? Builders risk coverage is available for various time frames, and a term greater than 12 months may increase your costs. Another time element to factor is if the construction project has already started more than 60 days before coverage begins.
- Location: The specific geographic location of the project may impact the costs of your policy, depending on the risks associated with that area. Construction within range of wildfires, in a flood zone, or in Tornado alley, for example, could significantly increase your coverage costs. Projects with close proximity to coastal waters or brush may have higher premiums than a project outside of those areas. Your rates can even vary depending on the state in which you are building.
- Type of Construction: A single-family residential home will generally have coverage costs less than a multi-family residential residence, or even a commercial project. The project type may be one of the biggest, if not the most simple, consideration when determining your policy costs.
- Deductibles: Like any other construction insurance policy, the amount that you pay in premiums can be affected by the deductible limits you choose. Generally, selecting a higher deductible can lower your monthly premium payments. If you want to lower your premium amounts, select the highest deductible that you are able to pay.
With so many elements that go into constructing a builders risk policy, and so many changing variables to consider, it is no wonder there is no “standard” formula for pricing. The best way to determine your builders risk insurance costs for your next project is to contact an experienced construction insurance professional to discuss your project needs and receive a quote for your builders risk policy.