The decision of who pays for builder’s risk insurance often comes down to a mutual decision by the project owner and the general contractor…
This is because the project owner and the GC are the parties with the most to lose if a job is stalled as the result of a claim on an ongoing project.
What Is Builder's Risk?
Builder’s risk insurance, also known as “course of construction” insurance, is a type of property insurance that protects projects while they are under construction.
Builder’s risk is one of several types of insurance that general contractors and building owners should insist on, including hired/non-owned auto, contractual liability, an installation floater and other coverage related to general liability and property.
Your builder’s risk policy is usually written on an “all risks” basis and protects any real property, such as a building under construction, as well as building materials that are used on the job.
Builder’s risk should even cover soft costs as long as they are related to the overall budget for the project.
Who Pays For Builder's Risk Insurance?
A builder’s risk policy is important for any construction project because it indemnifies against damage that could cause a project to grind to a halt due to a loss…
The two parties with the most to lose when/if a construction project goes south are usually:
- The general contractor (GC)
- The building owner (i.e. project owner)
As such, it is common for the GC or the building owner to pay for the builder’s risk policy.
Whether the project owner pays or the GC pays depends on what is negotiated between the owner and the GC, as well as the circumstances of the project and on the standard practices/expectations of each party.
A large general contractor may have a builder’s risk “master policy” that he or she can simply add projects to as needed. In such a situation, the GC would take on the responsibility for paying for the builder’s risk policy.
How Much Does Builder's Risk Cost?
Builder’s risk cost is affected by the amount of coverage, the number and type of exclusions in the policy, the type of project, the budget and term of the policy.
The policy should cover perils such as theft, fire, explosion, earthquake, government action, weather damage (hail, lightning, water), collapse and mechanical breakdown. Other coverage may include debris removal and vandalism.
The limit (i.e. the amount of coverage) of a builder’s risk policy equals the total completed value of the structure or project being built and the term of the policy.
For example, a project that has a $1,000,000 budget, would take out a $1,000,000 builder’s risk policy.
The policy includes the value of all the building materials and labor costs that will go into the final project. The term of the policy may be 3, 6 or 12 months. Builder’s risk coverage typically ends once the project is complete… However, it may be extended, if necessary.
Builder’s risk cost may be 1%-4% of the cost of the project under construction.