You know the benefits of having builders risk coverage in place to defend your project. You want to protect the structure, your materials and supplies, and your machinery and equipment during the course of construction. And if something goes wrong, you want to get back on track fast without taking a major financial loss. Not every project (or contractor) may be eligible for coverage, however. If you are wondering which factors may limit your coverage options, keep reading.
Let’s take a look at some of the eligibility requirements you may need to meet in order to get builders risk insurance.
Your Claims History
Have you had builders risk claims in the past? If so, don’t panic. A previous claim won’t necessarily exclude you from getting a new policy for your upcoming project. However, if you’ve had multiple claims in a short amount of time, like more than 3 builders risk claims in the past 3 years, you may have fewer options available, or may face higher premiums for your coverage.
Your loss ratio is another factor which may affect your ability to get coverage. A loss ratio is the amount that an insurance provider has paid out in claims divided by the amount they’ve collected from you in premiums. In other words, if you have paid $100 in insurance premiums, but your insurance company has paid out $50 in claims on your policy, you have a loss ratio of 50%.
Even if you have only had one or two claims in recent years, but they were high value claims, the result to your loss ratio could affect the insurance program options available to you. Generally, a loss ratio of more than 50% over the prior 3 years could limit the policy programs available to you, or lead to higher premiums.
Are you trying to get coverage for a project that is across the street from an blazing wildfire? While builders risk insurance typically covers fire damage, it may be hard to get insurance if your project is within 50 miles of an active fire. Your best course of action is to protect your project with adequate insurance coverage before the fire (or other disaster) strikes.
Of course, it’s hard to predict when an unexpected event will occur (which is why you use contractor insurance in the first place). If a flash flood, fire, or other event has suddenly occurred, you may still be able to get coverage for your project. Your contractor insurance provider can tell you if you are safely out of reach of that particular peril, or what other options coverage options you may want to consider.
If you are taking on a remodel project where the structure was damaged as a result of a flood, fire, or earth movement, that project may not be eligible for coverage. That’s not to say that you shouldn’t take on a project to remodel and repair after a kitchen fire destroyed part of a home. There may be situations where you can get adequate insurance for a project involving prior property damage. However, it’s best to talk with your insurance provider to see if that particular project is eligible for coverage before you begin.
Are you a brand new contractor, working on your very first project? Protecting the project during the course of construction is a smart move that can preserve your assets and investment. But you may have fewer options for business risk coverage compared to a contractor with more years in the business. Contractors who have been in business as a homebuilder or remodeler for less than 2 years may not be eligible for some insurance programs. That doesn’t mean you can’t get covered, but it may give you fewer options for coverage, or come at a higher premium price.
Additional Eligibility Factors:
The factors mentioned above are some, but not all, of the things considered when you apply for builders risk coverage. Other eligibility factors are also taken into consideration when determining which program best fits your need, and what your builders risk costs may be. These include:
- Type of project (residential vs commercial)
- Project value
- New construction vs remodel
- Fire protection class code (a rating of the fire protection system, which includes fire department quality and available water supply, of cities and towns.)
Are There Exceptions?
Every insurance program has different eligibility guidelines. If you fall short of meeting a guideline, it doesn’t necessarily mean you can’t cover your project. Talk to your insurance provider to find out what your options are. You may be able to get an underwriting exception or have options available to you that you never considered.
Protecting your projects with builders risk coverage provides you a safety net in the event something goes wrong during construction. If a fire breaks out on site, a vehicle plows through the side of the building, or a roof collapses -- builders risk is there to get you back on your feet quickly and without facing a huge financial loss. Talk to your insurance provider for more details about the eligibility requirements, to get a quote on your upcoming project, or for additional information about the policy coverage and limits.