What’s the first thing you do before getting started on a project? If you are a shrewd contractor, you start thinking about how to make the most profit and eliminate the risk of losing money. And the best way to keep your project profitable is with a specialized insurance policy:
Here are 11 things you should know about builders risk insurance:
- Builders risk is another name for course of construction insurance, because that’s when it covers your project and assets: during the course of construction.
- This is a specialized form of property insurance that covers a building or structure under construction, or a remodel project (when most homeowners policies will not.)
- The material and supplies that you need to finish your project are included in this coverage. You don’t have to worry about paying out of pocket to replace materials if they are damaged by a fire, flood, or high winds.
- Vandalism and theft are included in course of construction coverage, so you don’t have to “pay the fine for someone else’s crime.”
- Course of construction can cover demolition expenses, and the cost to clear debris if your project is hit by an earthquake or other natural disaster. Clean-up and salvage costs won’t eat away at your profits.
- Lightning hits the neighbor’s house and a fire spreads to your project site? Covered.
- Your project buildings and structures aren’t the only ones covered; temporary structures are, too. Don’t worry about damage to your scaffolding or construction forms.
- Blueprints, site plans, and even temporary papers are covered with a course of construction policy.
- This friendly policy can include the owner, general contractor, and subcontractors as “named insureds,” which can eliminate finger pointing and responsibility for loss, delays, and damages payment in the event it is needed.
- You can get a policy for the time it takes to complete your project: three-months, six-months, or 12-months. You can even extend the period if your project takes longer.
- It’s easier to ask what's not covered in your policy than what is. This broad-insurance coverage protects you from almost everything short of fraud, intentional acts, or specific inclusions.
5 More Bonus Facts!
We've updated this popular post with even more facts and info about your builders risk policy.
Bonus Fact #1
You can factor overhead and profits into your completed value estimate. These values are commonly figured at about 10% each. Your policy may specifically mention overhead and profits as being covered, but even if they aren't mentioned be sure to add these costs in. Overhead and profits can sometimes total up to 20% of a project's loss!
Bonus Fact #2
Some of your equipment may not be covered by your builders risk policy unless an equipment floater is included. Bulldozers and ditch diggers, for example, generally need a floater to be covered.
Bonus Fact #3
There is no equivalent policy to a builders risk policy. Your general liability and/ or commercial property insurance can't substitute for the specialized coverage that a course of construction policy provides.
Bonus Fact #4
"It's never too late" is a myth - at least when it comes to builders risk. You can't get this coverage once a project has started, it needs to be obtained before work begins. When it comes to builders risk insurance you need to get it early if you want it at all. In other words, "the early bird gets the builders risk coverage."
Bonus Fact #5:
Change orders change your policy. As changes are required on your project by architects or the owner, the costs of your project will also change. Some builders risk policies include "escalation clauses" that increase your coverage limits and premiums if change orders increase the total project costs. Others will require you to inform the insurer of changes to the project costs.
So much can go wrong while you are in the middle of a project. There is no way to know when winds will send a tree crashing through your site, if a sudden rainstorm will flood your project and ruin your materials, or if mischievous kids will spraypaint your project in the middle of the night.
Course of construction coverage keeps you on track to finish your project without having to pay out of pocket to clean up, replace, or repair the damage from a completely unexpected event.
Starting a job without this coverage is like walking away from a paycheck. It just doesn’t make sense.
Want to know even more about builders risk insurance? Check out part 2 of our series:
11 (More) Must-Know Facts About Builders Risk Insurance