Insights 101 | Builder’s Risk explainer
Risk happens. And that’s why builders risk insurance is specifically designed to cover property during the period of construction, including renovation and repair that is typically is purchased by either the property owner or general contractor.
It’s needed because most commercial property policies will exclude or null and void coverage if major renovations or construction to the building is above a certain threshold and not fully/properly disclosed to the incumbent property insurance company.
There are additional risks and responsibilities inherent in this type of work that a typical property policy is not designed or priced to cover.
All parties that have property involved in the project should be named in the insurance policy. This may include the owner, contractor, subcontractors, the financial institution funding the project and, in some cases, the architects and engineers too.
What to know about coverages in builders risk insurance policies…
When purchasing construction insurance, one of the issues often overlooked is the policy period.
Commencement of builders risk insurance coverage. A builders risk policy provides coverage for property in the course of construction, renovation or repair.
But at what point does construction renovation or repair begin?
- Typically, contracts require that building construction insurance be provided for the duration of the contract period.
- The lender may specify the inception date.
- Be sure to review the insurance policy provisions to determine whether there are restrictions on when coverage begins.
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So what happens when a builder’s risk policy expires?
Determining when coverage terminates can be equally problematic. Building construction insurance policies can contain provisions that terminate coverage prior to policy expiration.
The provisions typically state that Building construction insurance will end at the earliest of the following:
- The policy expires or is cancelled.
- The property is accepted by the purchaser.
- Your interest in the property ceases.
Careful planning is the foundation for a smooth construction project, which includes the best builders risk coverage.
Understanding the Necessity of Insuring Both Hard Costs and Soft Costs in a Builder’s Risk Policy
Construction projects, whether undertaken by professionals or individuals, involve a variety of expenses, categorized as hard costs and soft costs.
Hard Costs: These costs are integral to the insurance for home builders as they directly relate to the tangible components of the construction. This encompasses materials, labor, and any other expenditures directly tied to the physical completion of the structure.
Soft Costs: On the other side, soft costs are a critical aspect of builders insurance for homeowners. These expenses are indirect and extend beyond the actual construction. They include legal and accounting fees, interest payments, real estate taxes, and costs associated with additional insurances.
While standard Builder’s Risk policies typically cover hard costs, soft costs might not be automatically included and may necessitate an endorsement to ensure coverage in the event of a loss.
For instance, if a fire causes damage during a residential construction, not only the rebuilding costs but also the subsequent soft costs should be considered. Resurveying the land, increased insurance premiums due to project delays, and charges for reissuing architectural plans are just a few examples of soft costs that can substantially increase the financial burden of a loss. Therefore, comprehensive insurance for home builders that encapsulates both hard and soft costs is essential to provide full coverage and financial security, making builders insurance for homeowners a critical consideration in risk management.
What does Builder’s Risk Insurance not include?
Damages to the property insured are not covered under a Builder’s Risk Insurance in Canada once the project is finished, nor are damages resulting from:
- Actions by the government;
- Mechanical failures;
- Penalties due to contract breaches; and,
- Inadequacies in design, planning, or materials.
For a clearer insight into the restrictions of your coverage in Canada, it’s advisable to consult with your insurance company.
Who requires Builder’s Risk Insurance?
Builder’s Risk insurance is essential for anyone undertaking construction or major renovation projects to safeguard their property and themselves.
Our clientele typically consists of:
- Homeowners
- Business Proprietors
- General Contractors
- Construction Firms
- Property Developers
- Contractors specializing in renovations
Who is responsible for paying for builders risk insurance?
It is generally the obligation of the property owner to procure a Builder’s Risk Insurance policy for a construction project. As you iron out the specifics of a construction project, it’s crucial to ascertain who is tasked with securing the Builder’s Risk Insurance policy and confirm that all parties with an interest in the project are adequately protected.
Why Choose ALIGNED Insurance?
Choosing ALIGNED Insurance for your builders risk policy offers comprehensive protection specifically designed for construction exposures. They ensure that all parties with a stake in the project are covered, including owners, contractors, and financiers. ALIGNED’s policies address the unique risks of construction that standard property insurance may exclude, providing clear guidelines on coverage duration and termination conditions. With ALIGNED, you receive a customized builder insurance solution that aligns with contract requirements and lender specifications, safeguarding your investment throughout the construction or renovation process.
Frequently Asked Questions
Builder’s Risk Insurance serves as a specialized form of Property Insurance tailored to safeguard during the construction or remodeling phase of a property. It typically offers coverage for structures in the process of being built, materials present on the construction site, and potential liabilities arising from incidents like fire, wind damage, vandalism, explosions, and accidents resulting in injury.
Indeed, it is. Contractor’s insurance usually does not encompass coverage for buildings that are actively being constructed. To ensure that your building project and associated liability risks are protected during the construction phase, obtaining a builder’s risk policy is crucial.
Yes, Builders Risk Insurance policies can often be customized to meet the specific needs of a construction project. This might include adding coverage for soft costs (such as architectural fees, interest on loans, and real estate taxes incurred due to a delay in the project), flood or earthquake damage if the project is in a high-risk area, and coverage for materials in transit or stored off-site.
If the construction project is completed before the policy’s expiration date, the coverage can usually be terminated early. Some insurers may offer a refund for the unused portion of the premium, but this depends on the policy’s terms and conditions. It’s important to notify your insurance provider as soon as the project is completed to discuss the next steps.
Builders risk insurance for homeowners is a type of insurance policy that provides coverage for homes under construction. It helps protect the homeowner’s investment from risks like fire, theft, vandalism, and sometimes weather-related damages during the construction or significant renovation process.
A homeowner should consider the value of the construction, the length of the project, the location and its specific risks (like extreme weather conditions), the materials used, and any liability coverage that might be necessary. It’s also important to check if the policy covers soft costs and how it handles delays in the project due to insured losses.
