Are you looking to buy a builder’s risk policy for your project? My name is Matt Rogers, and I’m with Contractors Risk Solutions based in Los Angeles, California. We create these videos and blog posts to educate and inform construction companies and homeowners about the intricacies of construction insurance. From Commercial Auto and Liability Insurance to Workers’ Compensation and Builder’s Risk Insurance, our goal is to help you navigate the complexities of insurance in the construction industry.
What Is Builder’s Risk Insurance?
Builder’s Risk Insurance, sometimes called Course of Construction Insurance, is a specialized property insurance designed to protect buildings under construction. While “Course of Construction” is a term more commonly used in personal lines insurance, it’s usually called Builder’s Risk Insurance on the commercial side. This coverage is essential for anyone involved in a construction project, whether you’re a contractor or a homeowner.
The Importance of Choosing the Right Policy
One issue we frequently encounter in our office is the growing popularity of lower-priced Builder’s Risk policies. These policies can be about half the price of standard policies, which can seem appealing. However, it’s important to understand why these policies are so much cheaper. The lower cost often comes with reduced coverage or limitations, which can significantly affect your project.
For instance, if you’re working on a small remodel that you’re confident will be completed within two years, a lower-priced policy might work for you. But in many construction projects, unexpected delays are common—whether it’s due to permit issues, material shortages, or subcontractor changes. These delays can extend your project beyond the anticipated completion date, and this is where the limitations of a cheaper policy become a problem.
The Risk of Limited Policy Terms
One significant limitation of these lower-priced Builder’s Risk policies is that they often cannot be extended beyond two years. This means if your project takes longer than expected, you may find yourself without coverage and scrambling to secure a new policy. Unfortunately, finding a new insurer to take on a project that is more than 75% complete can be extremely difficult and expensive.
Most insurance companies are hesitant to issue new policies for projects that are already near completion because the risk is too high. If you’re fortunate enough to find a company willing to insure your project at this stage, expect to pay a significantly higher premium—potentially doubling what you initially paid.
The Hidden Costs of Inadequate Coverage
Another critical aspect to consider when choosing a Builder’s Risk policy is whether it allows you to purchase additional coverage during the construction process. Construction budgets often increase as the project progresses, and if you’re borrowing money for the build, your bank or finance company may require additional coverage to match the increased value of the project. Some lower-cost policies do not allow you to buy more coverage once the policy is in place, which can put you in a difficult situation if your budget expands.
The Bottom Line
If you’re considering a Builder’s Risk policy, make sure it offers the flexibility to extend coverage beyond two years and the ability to increase coverage as needed during the construction process. While lower-priced policies may seem like a good deal upfront, they can end up costing you more in the long run if they don’t provide adequate coverage or flexibility.
For smaller projects, these cheaper policies may be sufficient, but for larger, more complex builds, it’s worth investing in a comprehensive policy that can adapt to the realities of construction.
Conclusion
Navigating Builder’s Risk Insurance can be challenging, but understanding the potential pitfalls of lower-priced policies can save you headaches and significant costs. Ensure your policy can be extended beyond two years and allows for additional coverage if your project’s budget increases. This approach will help you avoid unexpected expenses and keep your construction project on track.
Thanks for reading, and feel free to check out my other posts or videos. If you have any questions about Builder’s Risk Insurance or any other construction-related insurance needs, please don’t hesitate to contact me.
