BUILDERS RISK POLICY
This is a special, short term policy providing insurance for a building under construction. It is often used alongside a liability policy in construction work. This dual policy approach is needed because the Builders Risk Policy only covers the property – the building – itself.
The policy is typically written for the amount of the completed construction. It does not need to be updated throughout the work, since construction progression is usually already well established. For example let’s say a house will be built for $300,000 over a six-month period. The builders risk policy has a limit of $300,000. Early on in construction, if the rough frame and roughed out mechanicals are the only components of the house and the value (labor and materials) is $50,000, that is what the policy pays. If the construction is well along, say in the fifth month, and the value is now at $250,000 and the house burns down, the insurance would pay that value instead. This progression is already baked into the rates.
The rate used depends on only a few factors:
- Construction type
- Here on the south shore, distance to the coast
Commercial and industrial buildings are more complicated and take longer, but are often less expensive on a per thousand dollar basis recognizing the sophistication of the builder and risk control required.
Residential homes are more common and valuations run in a closer range, with rates starting at around $4 – $5 dollar per thousand dollars of coverage for a one-year construction period.
Builders Risk policies can be written for shorter periods when the construction-to-sale period is shorter than a year. Some residential projects take substantially less than a year, and time is a factor in cost. A six month policy might run 60% of the cost of an annual policy.
Builders Risk policies can also be used for additions, upgrades, or gut and rehab projects on existing buildings, although this costs a little more and can be more complicated.
One final reminder about a Builders Risk: as noted, this particular policy form does not include liability insurance; it is property coverage only. Always consult an insurance professional for arranging both risks to the construction site, property and liability, because construction sites have a lot of moving parts, and sometimes things do go wrong.