Builder's risk insurance
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Builder’s risk insurance protects your property when it is under construction. Whether you are constructing your dream home from the ground up, completing a significant renovation to your house, or renovating a commercial space, builder’s risk insurance is there to protect you from the unknown and the potential for significant financial exposure.
What is Builder’s Risk Insurance?
Builder’s Risk Insurance provides coverage for physical damage or complete loss to a property while it is being constructed. There’s a lot that can go wrong during a construction project!
There are many different types of construction projects, and each one comes with its own risks.
From the construction of a single home, to a large neighbourhood development, condo development, or even road construction, each of these projects can result in property damages.
Damages can include full structural damage to cosmetic damage. All damage and loss will result in additional cost to the construction project, which the builder’s risk insurance will cover (subject to limitations).
This type of insurance is also referred to as Course of Construction insurance, Contractor’s All Risk insurance, or even as Contract Works insurance.
What does builder’s risk insurance cover?
As mentioned above, a builder’s risk insurance policy protects individuals or businesses from the risks of damage and loss occurring from a construction project.
The coverage includes:
- Cost of the building under construction
- Cost of construction materials
- Cost of the contractor’s tools and equipment used to complete the project
This coverage will continue until the project is complete and signed off by the owner.
Add-ons can be added to the policy, at an additional premium, to extend coverage.
Who should obtain builder’s risk insurance?
Builder’s risk insurance should be obtained by those individuals or businesses completing a major renovation or building construction project. By major renovation, we mean one that affects the structural components of the building.
Anyone who may be associated with the construction project or site should consider a builder’s risk policy. A general rule of thumb is that if the work is connected to the project, regardless of the trade, the policy would still apply.
The following businesses should consider obtaining a course of construction policy:
- Business owners
- General contractors
- Renovation contractors
- Real estate developers
- Condo developers
- Investment companies
A contractor will have insurance coverage through their commercial general liability insurance. However, this coverage will generally exclude buildings under construction. The separate builder’s risk policy will extend coverage to properties under construction.
As a homeowner going through a major renovation or new build project, if a contractor says that they are “insured”, it is worth verifying whether their insurance covers builder’s risk.
When should I obtain builder’s risk insurance?
A builder’s risk policy should be obtained at the planning phase of the construction project, before it is underway.
It is very common for property owners to begin worrying about insurance only after the property has been developed and is operational because it’s at that stage that significant money has been invested in the property.
Many insurers do not provide coverage after a construction project has begun. There are specialty insurers who are prepared to offer coverage once the project has started, however the policies won’t be backdated.
It’s important to contact your insurance broker before the project gets underway so that coverage can begin at the outset of construction and protect you and your property during the early stages of the project!
Once the project is nearing completion, your broker can then advise you on the appropriate commercial or home property insurance to cover the finished building or completed project. This is important to note because when the construction project is finished, your builder’s risk insurance policy will lapse.
What is the term of builder’s risk coverage?
While a typical commercial insurance policy is quoted and priced based on an annual term, a builder’s risk policy is issued based on the expected length of the construction period.
This period can range from anywhere from 3 months to over 12 months.
As a construction project is rarely ever finished on time, extensions (at an additional premium) are possible if arranged prior to the expiry date!
How much does a builder’s risk insurance policy cost?
The cost of a Course of Construction insurance policy will vary depending on the size of the project. The larger the construction project, the greater the coverage, and therefore the higher the premium.
A longer project will also generally cost more than a shorter project, as the risk of a loss is greater as time goes on.
A lot of policies will have limitations and exclusions so if you are comparing two policies side by side, it is important to verify what’s included. Your insurance broker can help you make an apple to apples comparison and advise you accordingly.
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Builder's Risk Insurance FAQ
A builder’s risk insurance policy’s coverage is focused on damage caused to the property during the construction phase. There are a number of risks that may be excluded from a standard policy. These include:
- Damage caused by earthquakes, flooding or other natural disasters
- Equipment breakdown caused by negligent activities
- Faulty design, planning, workmanship, or materials
- Intentional acts of damage or vandalism
- Work carried out on the same site, but for a different project (a new policy would be required to cover the different projects)
- General liability claims, such as bodily injury
- Contractual penalties
- Workplace accidents
Add-ons or extensions can be added to a standard all-risk policy. Talk to your insurance broker about your project and they can advise you accordingly.
The owner of the property will have commercial property insurance or a home insurance policy to cover the existing building. That policy will not cover any new section of the building under development.