What Is “Builder’s Risk Insurance” and Why Is It Important?

Builder’s Risk Insurance, sometimes referred to as “course of construction insurance,” is a type of property insurance that offers financial protection for a projected or insurable area while it is under construction. This insurance is only available to purchase before construction has begun, so it’s important to acquire coverage before you start building. During the construction period, buildings are more vulnerable than ever to the elements. Even unusually heavy rainfall has the potential to damage your home – before it’s even constructed. This is where Builder’s Risk Insurance comes in to help protect you from different scenarios and allows you to rebuild without taking more out of your finances than your construction project needs to.

What does Builder’s Risk Insurance cover?

Builder’s Risk is an insurance policy that is purchased to cover property owners and builders for projects that are under construction, being repaired, or being renovated. Like personal property coverage, Builder’s Risk Insurance covers losses and helps cover the cost of repairs and restoration for common perils like theft and vandalism, fire, accidental losses, or destruction of insurable property. Generally, Builder’s Risk will provide coverage on an “all risk” basis. The difference between an ordinary property insurance policy and Builder’s Risk Insurance is that Builder’s Risk only covers buildings during the course of construction – whether that’s a new build, a repair job, or a renovation.

Builder’s Risk policies do not cover any losses that have occurred prior to when construction began or loses that occur after construction has been completed. Builder’s Risk is designed to protect projects under construction, so construction must be deemed “in-progress” for viable coverage. Builder’s Risk Insurance may not cover any losses that exceed the full value of the project.

Why is Builder’s Risk Insurance Important?

Builder’s Risk Insurance is vital because your standard home policy will exclude coverage for buildings that are being renovated or under construction. Real estate developers or construction workers may also need this to fill out an existing commercial policy. Consider the following scenario –

An Ontario couple had their Christmas season come to a jarring halt when they learned that their cottage under construction was ablaze early morning on Dec. 26. The cottage was not insured because the couple had relied on their savings and no bank loan required them to purchase insurance. Unfortunately, this resulted in disaster as the entire cottage went down and the couple was forced to look elsewhere for the replacement funds via a GoFundMe.

Situations like this can be avoided with the right insurance. Considering that the average cost of a full house renovation in Canada is between $15,000-$200,000 you may want to obtain the right coverage to protect your household under construction.

Builder’s Risk Insurance covers the gaps left by your standard home insurance if you decide to take on a new construction project, do renovations, or complete any necessary repairs. Always make sure to inform your broker before starting a new renovation project and enlist their expertise on what coverage you may need.

The Cost of Builder’s Risk Insurance

The cost of Builder’s Risk Insurance will vary from provider to provider. You may expect to pay anywhere between 1% to 4% of the total construction cost for your Builder’s Risk Insurance policy. The one paying for the Builder’s Risk Insurance will be the one who purchased the policy, i.e., the property owner, the general contractor, or the subcontractor.

What affects Builder’s Risk Insurance rates?

Premiums for Builder’s Risk Insurance are inexpensive when compared with the cost it could take to repair or restore your project entirely following a loss. They may vary depending on the type of work being done, in addition to the following factors:

• The location of the project
• Type of work
• The timeline
• Project scope
• Project value
• Structure size
• Weather threats

Typically, a Builder’s Risk Insurance policy will range between 1% and 4$ of the total construction cost. This will include materials and labour costs but generally excludes land value.

Who Needs to Buy Builder’s Risk Insurance?

Several individuals who are involved in a construction project may purchase Builder’s Risk insurance to protect a property being developed. Those include:

• The property owner, who acts as a contractor on their own project.
• General contractors, who work on behalf of the property owner to build or renovate a home.
• Subcontractors, who work with the owner of the property on the project.
• Construction companies, who work with the owner on the project.
• Developers and builders, who work on a new construction project.

Builder’s Risk Insurance is most purchased by the property owner, but Builder’s Risk is a viable purchase for anyone working on a construction project that wants protection should that project ever face a problem.

What Type of Builder’s Risk Insurance Do You Need?

There are a couple of different options when it comes to Builder’s Risk Insurance. You will need to choose from two main options to start –

• Workers Builder’s Risk Insurance – Delays and interruptions are very real risks that contractors and builders face. Builder’s Risk Insurance covers financial losses arising from damages to building materials, equipment, labour, and interruption costs.
• Homeowners Builder’s Risk Insurance – Because your property insurance won’t cover dwellings under construction, you risk a claim submitted during a period of renovation being denied. You would have to cover the costs yourself. Tell your insurer if you have any renovations planned and ensure that your coverage is secure before beginning renovations.

Coverage may also be divvied up into three groups: hard costs, financial loss, and soft costs. Hard costs covers the structure and its components, including equipment, fixtures, and raw materials. Financial loss covers any losses that occur from a loss of use to the actual dwelling. Soft costs is for engineering and legal fees. Use an advisor if you aren’t sure which option to choose.

The bottom line is that you need insurance when you are doing a renovation. Your home insurance won’t cover any losses that occur while your property is under construction. Discuss with Excalibur’s experts about Builder’s Risk Insurance and get started today before you begin building your next dream home or doing those renovations you’ve been planning for so long.