Builders risk insurance

Builders risk insurance is a type of insurance coverage landowners can purchase before hiring a contractor to build their home. Also known as course of construction insurance, contractors require property owners to carry this policy in order to proceed with work on their home. While in effect, the insurance policy is there in case damage occurs that affects or undoes work that’s been done or to materials.

Why insure your construction project? Imagine you’ve budgeted a sum of money for your project and you’re at your maximum spend. Your project is 80% complete when a windstorm ravages through the build and puts you back to square one. All your money? Down the drain. Carrying an insurance policy ensures you don’t have to bear that financial burden.

A builders risk insurance policy covers the following:

• The structure in question while it’s under construction
• Labor costs
• Any on-site material waiting to be installed or transported
• The land, however, is not included in the insurable amount.

As a client, you can snag a builders risk insurance policy that lasts anywhere from 3 to 18 months. Take a coverage period equivalent to the expected duration of the project.

Typical perils covered include:

• Fire
• Wind
• Theft
• Lightning
• Hail

The general contractor or the owner? It can go either way!

The two parties have to come to an agreement in advance on who has the insurable interest; in other words who owns the home before it’s complete.

The person that has insurable interest in the property-in-progress — the future owner or the builder — is the one that should buy the builders risk insurance policy.

If you plan on building your own home from scratch, you can and should purchase a builders risk insurance policy. You can get this through most home insurance companies including Intact Insurance.

Note: Course of construction insurance is the exact same thing as builders risk.

Expect to pay between 0.5%-1% of the value of the finished structure(the project).

The formula for coming up with a premium on a builders risk insurance policy begins with the total cost of the project. Insurance companies start by determining the total cost of the job, including materials and labour. Then, they charge you a percentage of that total.

On a $1 million build, for example, you can expect to pay between $5,000 and $10,000.

There are two common scenarios in which you might require a course of construction insurance policy.

Constructing a new building — Any time you’re building a home from scratch, you should insure that construction project with a builders risk policy. That takes care of the structure in progress, labor costs, and any on-site material.

Adding an extension to your home — If you’re building a significant addition to your existing home, you should insure this endeavor separately through a course of construction policy.

Not all builders risk insurance policies are created equal, so it’s important to read your policy’s exclusions every time.

Here are typical exclusions:

• Earthquake
• Water damage
• War
• Contract penalty
• Mechanical breakdown

Of course, this is a general list. Read your policy carefully to be sure.

No difference! These terms are used interchangeably in the insurance world.

No, builders risk insurance typically excludes earthquake coverage. It is however an option you can add at additional cost