Overview of Builder’s Risk Insurance

Construction businesses in California encounter a series of risks ranging from fire, theft, vandalism, delays, and hurricanes, among others.

Consequently, parties in the industry may suffer financial losses due to lost sales, extra interest expenses, and other costs.

Builder’s risk insurance is an excellent backup plan that shields key factors like contractors or property owners from potential losses.

That said, acquiring a well-structured builder’s risk insurance policy is a crucial step in the risk management of your construction project.

Below are some things to know about builders’ risk insurance coverage. To discuss your coverage needs, reach out to a Northridge, CA insurance professional today. 

What Does Builder’s Risk Insurance Cover?

Builders insurance protects stakeholders with a financial interest in a construction project. Interested parties include property owners, lenders, architects, contractors, subcontractors, and engineers.

A builder’s risk insurance covers the following risks:     

• Losses arising from property damage during construction
• Additional costs or expenses that are not directly related to construction
• Delays leading to lost income, sales, and additional interest income

What’s more, you can request a customized extension to cover the unique circumstances of your project: for example, soft costs, debris removal, temporary structures, and pollutant clean-up and removal.

Exclusions From Builder’s Risk Insurance

Unlike general commercial liability cover that contains standard elements, builder’s risk insurance has exclusions. As such, look closely at your policy document to understand the coverage and exclusions.

Here are a few standard exclusions:

• Mold and Pollution: Most insurers exclude mold and pollution in the standard builder’s risk insurance cover. Even so, some have it under exceptional circumstances. Therefore, consider a mold and pollution extension to cover the associated risk.
• Ordinary Wear and Tear: Insurers exclude wear and tear elements due to their predictable nature.
• Faulty design and Workmanship: Professional liability insurance covers this element of risk. Therefore, insurers exclude it to avoid double-insurance.
• Employee Theft: Insurers exclude it because losses arising from employee theft fall under the commercial crime policy.
• Settling, Shrinkage, and Cracking: Builder risk insurance doesn’t cover normal and expected settling or shrinkage. As such, inquire if your provider covers accidental settling, shrinkage, or cracking.

Factors That Determine The Cost of Builder’s Risk Insurance

The builder’s risk insurance ranges from 1-5% of the total construction cost. In addition, each construction project has its unique needs and risks. Customized extensions mean more risk and higher premiums.

Here is the breakdown of cost determinants:

1. The total cost of the project
2. Quality of materials
3. The profile of contractors and subcontractors
4. Location of the project
5. Square footage of the site
6. Storage of construction materials

A point to note: An insurer can pay the actual cash value of the damaged property based on replacement value. Although the latter carries a high premium, it yields a better payout.

Protect Your Interest With Builder’s Risk Insurance

A typical construction project is capital intensive, implying risks can hit hard. Builder’s risk insurance is vital coverage that injects confidence in your operation. As such, it’s crucial to obtain your builder’s risk insurance policy from a trusted Insurance company like Northridge, CA Panorama Insurance Agency. Contact us today to get a quote. Call: 818-781-6630.