Builder’s risk insurance provides protection for a structure that is damaged during construction. These policies are usually broad. In fact, the coverage is generally extensive enough to include construction equipment and machinery, as well as materials, fixtures, and appliances — all vital parts of a completed structure. It can also cover temporary structures, such as office trailers, on a project site.
If a loss occurs, the insurance company will pay to repair the damaged property. However, keep in mind that the coverage is limited to losses that are clearly specified. Claims must fall within the policy’s definition of “covered property.”
Here are some basic features of a typical builder’s risk insurance policy:
This type of extensive coverage can be expensive, but there are factors that can mitigate the premiums. Here is a rundown of how the rate for a project is typically determined:
Your company can qualify for further discounts by providing security measures such as good lighting and fences around construction sites. If the property is in a particularly high crime area, the carrier may require that your company provide a security guard and possibly a guard dog before a policy is issued.
Premiums can also be affected by whether there are sprinklers in the building and there is sufficient access for fire fighting equipment to reach the site. The insurer may even look at adjoining properties: Do they pose a risk to your structure? And are there natural risks involved, such as high wind or brush close to the building?
Although a great deal of consideration is placed on tangible factors, such as those listed above, there are also intangible concerns that can affect how an insurer determines premiums. The experience, training and supervision of personnel, the builder’s expertise, and the subcontractors might be taken into account, especially when the policy is for a large-scale construction project.
Builder’s risk insurance is just one type of insurance coverage that a commercial property owner, real estate developer or construction contractor might need.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.