If you are planning to invest in a building project, then you will need a builder’s risk insurance. Builder’s risk insurance exists to safeguard the construction process and includes policies for covering potential hazards while a building is being constructed.
The average builder’s risk insurance policy costs just under $100 a month for a small business. That comes out to about $1,200 a year. Larger businesses can expect to pay around $2,000 a year for builder’s risk insurance though even larger companies can pay thousands a year. One way to estimate the monthly cost of builder’s insurance is to find 1% to 4% of the total cost of the building project.
Building projects are a hefty investment. So, you will want to make sure that your assets are protected. A builder’s risk insurance policy can help bring peace of mind while you put your capital towards construction costs.
However, there are a lot of specifics with builders’ risk insurance policies. So we put together this comprehensive guide on builders’ risk insurance costs. We will cover specifics about builders’ insurance policies and give an estimate of how much you will pay a year. We will also cover basic facts about builders’ risk insurance and how it works.
- What Does Builder’s Risk Insurance Cover?
- How Much Does Builder’s Risk Insurance Cost?
- Builder’s Insurance Coverage Limits
- Builder’s Insurance Deductible Cost
- Who Buys Builder’s Risk Insurance?
- Tips for Buying Builder’s Risk Insurance
- Best Builder’s Risk Insurance Providers
- Frequently Asked Questions
What Does Builder’s Risk Insurance Cover?
Builder’s risk insurance is meant to protect a building from hazards during the construction process. To that end, the typical builder’s risk insurance policy will cover damage from the following events.
- Lightning damage
- Vehicle or aircraft impact
- Windstorm damage
- Hail damage
- Riots and civil unrest
- Intentional malicious acts
Note that the typical builder’s risk policy does not cover faulty workmanship or damaged equipment during the construction process. Commonly excluded damages include things like
- Damage from war
- Material defects
Builder’s risk insurance policies also do not cover the land that the building is built on and aunty water on the premises. Be sure to check your builder’s risk insurance policy for exclusions and conditions on included perils.
Building risk insurance will generally cover all permanent buildings on the project site, which includes materials, foundations, and other building equipment. An insurance policy will also cover any costs related to accidents and injuries that occur on the construction site.
Builder’s risk insurance may also cover any excavation and removal in case of catastrophic damage. This includes debris from any fallen structures. Lastly, a builder’s risk policy may cover any loss of income or rental value in case your building project is delayed due to damages.
Hard vs Soft Costs
It is worth your while to see if your insurance policy covers both hard and soft costs, or only one or the other. “Hard costs” include costs related to things like building materials, labor, installations, and other physical aspects of the project.
Soft costs include things like permits, construction fees, or financial costs. A builder’s risk policy may cover one kind of cost but not another, so make sure you understand the specifics of your plan.
How Much Does Builder’s Risk Insurance Cost?
Builder’s risk insurance cost can vary widely depending on several factors, including but not limited to
- New or renovation project. Insurance for new projects will likely be less than for renovation projects. The reason why is that existing buildings might have unknown damage or faults.
- Project location. Areas that get more bad weather or are more likely to experience some kind of natural disaster will see higher insurance premiums for the increased risk. Locations that have higher rates of crime may also have higher premiums.
- Construction materials. Exotic or unconventional materials will cost a lot to insure properly. Similarly, materials that are prone to things like fire damage or other kinds of structural defects may increase your premiums.
- Project timeframe. The project time frame is also relevant. Projects with a longer construction schedule will cost more to insure because there is more risk to the insurer.
- On-site safety measures. Your insurance policy cost might take into account any safety features or protocols on the job site. Construction sites that do not use the proper safety protocols may have to pay more.
- Cost of the project. The cost of a builder’s risk policy is roughly proportional to the total estimated cost of the project. So the more expensive your project, the more your policy will cost.
As such, the estimated costs of builder’s insurance can vary widely from case to case. According to Insureon, the median annual cost for builder’s insurance in the US is approximately $95 per month or around $1,200 annually. The median cost is generally a more accurate measure than the average cost as the median represents better what any particular business is most likely to pay.
Additionally, nearly ⅖ths of small businesses pay less than $1,200 per year for builder’s insurance. And about half pay under $2,000. The typical policy costs about 1% to 4% of the total cost of the building project, plus fees for processing. Builder’s insurance policies are highly customizable and individualized, so your policy may not necessarily reflect the national averages.
So for example, if your building project is $100,000, then the typical builder’s insurance policy would cost anywhere between $100 to $300 a month, or between $1,000-$3,000 per month. You can estimate the cost of the project by adding together the total cost of materials and labor for the project (excluding land value). The larger your project, the more your policy will cost.
Keep in mind that a builder’s risk insurance may not provide all the protection that you need. In addition to a builder’s risk policy, you may need to buy other property insurance, workers compensation insurance, and general liability insurance. Some commercial insurance bundles will include builder’s risk insurance in addition to commercial property insurance and general liability insurance. You can often save by bundling insurance.
Most of the time, builder’s risk insurance costs depend on the coverage type. Different insurance policies are necessary because different construction projects have different risks. It is important to understand the construction type as that can cause premiums to jump by more than 50% if it’s a risky project. Moreover, if you don’t understand policy coverage options for different construction types, you could be in a bind if you choose the wrong policy.
Construction types that insurance providers consider include
- All steel
- Fire resistive
As you might expect, a highly risky project that involves combustible or flammable materials will most likely cost more. Generally speaking, the “frame” class has the most expensive premiums.
If you have an expensive building code, then you can end up paying more for your policy. For example, a $100 a month policy can turn into a $200-$300 per month if you have an expensive construction type code.
A builder’s risk policy will not cover everything on its own. More insurance companies are adding exclusions to general liability policies. So you can get endorsements to your basic risk policy to add extra coverage. Common types of endorsements for builder’s risk insurance include
- Debris removal – Removal of any debris after an event that is covered under the insurance policy.
- Backup or Overflow – Protection against damage from backed up or overflowing drains and sewers.
- In Transit – This endorsement will protect materials that will be part of the construction project while they are in storage or in transit.
- Change order coverage – Change order coverage will cover an unexpected increase in materials or construction costs.
- Expediting Expenses – If extra expenses are required to mitigate further damage to the party, an expediting expenses endorsement will cover it.
- Loss of business – Loss of income from business or rent due to a covered event.
The cost of endorsements also varies heavily depending on the type of construction process. But the average cost of an endorsement to a property insurance policy is around $40-$50 a month. So, depending on how many endorsements you add to your policy, your monthly policy costs can vary.
Builder’s Insurance Coverage Limits
A standard 1%-4% policy will give around $1 million to $2 million of coverage. Your policy will pay for damages up to this limit. In most cases, if you need more coverage, you can pay for supplemental insurance to increase this limit. At the very least, you need to make sure that your policy is large enough to cover the construction amounts.
According to Insureon, the median coverage limit for the typical builder’s insurance policy is approximately $460,000. Keep in mind that policies might offer different coverage limits for different parts of the building. For example, a policy might have a $1 million limit for the frame and a $5 million limit for masonry.
Builder’s risk insurance policies can be written for 3, 6, or 12 months. The limit can also be extended if you need extra time to finish your project but you will likely have to pay an extra fee.
Builder’s Insurance Deductible Cost
Like any kind of insurance, builder’s insurance has a deductible, which is the amount you must cover first before insurance will step in and pay for things. In some cases, the deductible is $0 and you won’t have to pay for anything. But most of the time, deductibles are based on the total cost of the project. For example, say a policy has a deductible that is 5% of the total cost of the building project. If your building project costs $500,000, then your deductible would be $25,000.
Keep in mind that different parts of the building might be subject to different deductibles, and different kinds of damages might have different deductibles. For example, fire damage might have a $50,000 deductible while flood damage has a $100,000 deductible. So you have to pay more for one kind of damage before your insurance will kick in and cover the rest.
All other things being equal, plans with a higher deductible have lower premiums and vice versa. Paying a high premium might be infeasible, and a lower premium and a higher deductible are easier to manage during the construction process. You always have to pay the premium but you may not have to pay the deductible at all if things go well.
Who Buys Builder’s Risk Insurance?
All other things being equal, builders’ risk policies are purchased by either the general contractor or the owner/developer of the property. Given that both of these parties have the most to lose in the project, it makes sense that the responsibility of buying insurance comes down to them.
So, if you are the owner of the project, then you need to work out the details of paying for the policy with your general contractor. That way both parties have a say.
Tips for Buying Builder’s Risk Insurance
Here are some general tips for comparing and choosing the best builder’s risk insurance policies.
Know the Total Construction Costs
Building insurance is based on the total cost of construction so you can estimate the cost of your policy by calculating the estimated construction costs. Construction costs include materials and labor.
Distinguish Between Hard and Soft Costs
Make sure you know whether the policy you buy includes both hard and soft costs or whether it includes just one. Sometimes it may not be obvious. You may have to dig into the language of the policy agreement to see which kinds of things are included or excluded.
Renovation Costs More than Construction
You can get builder’s risk insurance for renovations and new construction projects. All other things being equal, a policy for renovations will cost more than a policy for a new construction project. The reason why is that a structure in need of repairs might have unknown damages, while a new structure does not have any such damages.
Make Sure You Know the Construction Type
The construction type is important because a riskier project will incur larger premiums. For example, a frame construction policy can cost up to 50% more than other types of builders’ risk policies. Generally, your policy will cost more for construction types judged as riskier.
Go for Larger Coverage
Construction projects involve a lot of capital, and it may not be immediately obvious how much coverage you will need for the project. So, to best protect your interest, you should look for insurance plans that offer substantial coverage so you can cover any unexpected costs in the event of damages.
Best Builder’s Risk Insurance Providers
Below are some of the top providers for builders’ risk insurance. These companies all provide basic coverage as well as more specific coverage policies for risks not included in a general policy.
CoverWallet offers builder insurance plans starting as low as #$39 a month for general liability, and $49 a month for general liability and property coverage. They also offer a pro plan that includes worker’s compensation and a business owner’s policy for $49. You can also make a custom plan and choose only the coverage that you need. CoverWallet will also help you switch over your insurance policy from your previous provider.
The Hartford offers builder’s risk insurance in addition to several types of commercial business and property insurance. With Hartford, you can buy just builder’s risk insurance or buy a bundle policy with other kinds of commercial insurance for your business.
The Hartford does not post any information about explicit prices, so you will need to talk to an agent specifically to get a quote. Many reviewers online say that the plans are more expensive than average, but that they also offer broad coverage against a number of threats. They also offer very high limits of up to $100,000 for blueprints, schematics, contract penalties, and more. According to J.D. Power, they have above-average customer satisfaction for the insurance industry.
State Farm is usually in the business of homeowners and auto insurance, but they also offer builder’s risk insurance for home renovations. If you already have a State Farm policy, then you can get an additional builder’s risk policy for a discount. You can also buy a standalone builder’s risk policy.
State Farm plans are flexible and you can add general liability, ordinance/legal coverage, equipment insurance, and more for an additional fee. State Farm bases builder’s insurance costs on the total cost of the construction project. The best way to get a price is to call an agent and get a quote.
Nationwide is one of the largest insurance companies in the country and offers a wide range of commercial insurance products including builder’s risk insurance. In addition to basic general liability coverage, Nationwide offers endorsements including
- Business income
- Debris removal
- Fraud and deceit
- Violation of ordinance or law
Nationwide lets you pick and choose parts of your coverage so you can get only the stuff that you need. Nationwide sets itself apart from other insurance companies as they offer loss control services, commercial claims, and a special investigations unit to help you document and recoup losses after an accident or mishap.
Chubb offers a wide range of insurance plans for individuals and businesses. Their builder’s risk policies are highly flexible so developers and owners can pick and choose what kind of coverage they want on their policies.
Chubb has specially-tailored underwriting for their insurance process so they can afford to allow such flexible insurance plans. Chubb is a good choice for large developers because they offer plans with very high coverage limits.
Frequently Asked Questions
How much does a builder’s risk insurance cost?
The cost of a builder’s risk insurance depends heavily on the type of project and various other factors related to the building process. The average small business can expect to pay around $95 a month for a standard builder’s risk policy, though larger companies can expect to pay more than $2,000 a year.
What factors determine a builder’s risk insurance costs?
The cost of a builder’s risk insurance is affected by total project cost, building location, materials, number of employees, and various other factors.
Make sure that you understand exactly what things affect the cost of your policy by discussing options with your policy provider.
How can I calculate the builder’s insurance costs?
The estimated average builder’s insurance policy costs about 1%-4% of the total construction costs. So if your project costs $100,000, you can expect to pay about $1,000-$3,000 per year, depending on the various factors we mentioned earlier.
Do I need builder’s risk insurance?
In short, yes, you need a builder’s risk insurance. Policies cover basic hazards that you may encounter during construction. Considering how much money the construction process costs, you want to make sure that the costs of the project can be recouped in case disaster strikes.
Moreover, many states require contractors and owners to purchase builder’s risk insurance so you have to have some kind of policy for a building project.
What does builder’s risk insurance cover?
Builder’s risk insurance typically covers fire damage, lightning damage, hail damage, vandalism, vehicle/aircraft collision, storm damage, and damage from civil unrest. Builder’s risk policies are all-risk policies so they cover more than a typical named-peril policy, but they do have exclusions. So make sure you read the fine print.
Builder’s risk insurance is a necessary part of the construction project process. In some cases, if you fail to get the right kind of insurance policy, then you can be held financially and legally liable for any mishaps. Builder’s risk insurance will protect your assets and help you recoup any losses in the event of damages.
Overall, builder’s insurance will form a small part of your budget. And, in the best of circumstances, you will never have to invoke your policy. But it helps to be prepared. So make sure that you thoroughly research your options. The right builder’s risk insurance policy can protect you if there are any mishaps during the construction process. You may be interested in Handyman’s insurance cost.