Building construction is a costly yet rewarding investment. You will have to pay for materials, equipment, professional services, and labor that might total hundreds, if not millions of dollars. However, in the course of these projects, builders face some unique risks that other professionals do not face.
Builders’ risk insurance is meant to mitigate these risks and safeguard builders throughout the building process. But how much does this insurance cost, and what exactly does it cover? Here’s all you need to know about builders’ risk insurance costs and policies.
- How much does builders risk insurance cost?
- How much is the average builders risk insurance cost per month?
- Builders risk insurance cost calculator
- Factors that affect builder’s risk insurance cost
- How to find cheap builders’ risk insurance?
- What is builder’s risk insurance?
- What does builder’s risk insurance cover?
- Builders risk insurance requirements
- Who needs builders’ risk insurance?
How much does builders risk insurance cost?
Builder’s risk insurance generally costs 1% to 5% of a company’s entire building expenditure. For example, a $100,000 construction budget with a three-month builder’s risk coverage may cost between $1,000 and $5,000 for the 3-month period, or $333 to $1,667 a month
That said, small building company clients tend to spend $95 per month or $1,140 yearly on builders’ risk insurance. Many small businesses (38%) pay between $900 and $2,500 annually.
How much is the average builders risk insurance cost per month?
As we explained above, the builders risk insurance cost is calculated as a percentage, between 1% to 5%, on the total expenditure of the building.
The average cost of the builders risk insurance depends on two main factors: the total expenditure of the building and how long it takes to complete the project. Obviously, these two factors are also connected since the bigger and more expensive projects will take longer time to finish. Below are some average cost scenarios for your reference:
|Project sizes||Estimated durations||Average cost per month|
|Small: total expenditure is $50,000||2 months||$500 per month (2%)|
|Medium: total expenditure is $100,000||4 months||$625 per month (2.5%)|
|Large: total expenditure is $500,000||12 months||$1,250 per month (3%)|
These are just the average. You will pay a different amount. Make sure you shop around with a few companies or work with a top broker like Simply Business, CoverWallet, or Smart Financial to get and compare several quotes before making your final decision:
Builders risk insurance cost calculator
When calculating builders risk insurance cost, most construction contractors estimate it to be 2-3% of the whole project budget. That is probably the simplest form of a builders risk insurance cost calculator. Insurance companies will determine the final percentage based on several factors of the project that we will be discussing below. But that should be a simple way to calculate the builders risk insurance cost to start with.
Factors that affect builders risk insurance cost
When comparing providers, it’s crucial to know what drives premium costs. By understanding how the premium is calculated, you can easily control the cost from your end.
The following are some of the factors that affect the cost of builder’s risk insurance. These factors help insurance companies determine the percentage they apply on a particular project:
The project’s location heavily influences the builder’s risk insurance cost. Policy costs are higher in locations prone to natural disasters such as wildfires, hailstorms, and tornadoes. Also, if you have your project in an environment where building supplies are expensive, it might raise the cost of your premium.
The project plans
The kind of building project that you have will also influence your premiums. Are you having an installation or renovation, or are you building from scratch? The insurance for installation work is usually a bit cheaper than other plans. This is due to the shorter time frame, and in most cases, installation jobs are simpler.
Remodeling projects, however, are often the costliest since insuring an existing building is risky once the alteration process starts. At the same time, simple remodeling work will be less expensive than new major constructions.
Types of building
The more quality your building is, the less risk for the insurance company. Remember that construction sites do not always have safety protection tools like burglary alarms, CCTV cameras, and fire suppression systems.
But when you build with quality materials like fire-resistant materials, you reduce the risk of having the whole building destroyed if there are issues. Therefore, insurers tend to reduce costs for builders that use quality materials that prevent damage.
You can obtain better protection for your building project by buying extra coverages. However, the more coverage you want, the higher the total cost of your premium. Optional coverages that you can buy at extra cost may include flood, change orders, earthquake, etc.
How to find cheap builders’ risk insurance?
Keeping to budget is one of the most critical aspects of building construction. So, it is normal that you want to cut the cost of everything, including your builder’s risk insurance cost. If this sounds like what you need, the following are some quick tips that may help you achieve your goal.
Compare several quotes
Builders’ risk insurance prices may vary widely across insurers. To ensure you get the best bargain, compare quotes from different insurers to discover the best rates. Shopping around with several insurance companies to get quotes from them or work with a top broker like CoverWallet, Simply Business, InsurePro, or commercialinsurance.net is a good way to get and compare several quotes easily in one place. You should also get a fast online quote from Thimble since it shouldn’t take you more than 5 mins to get a quote from Thimble.
Obtain a master policy
Some companies save money monthly or yearly on their builder’s risk insurance by acquiring a master policy that never expires. Contractors that manage a steady stream of tasks may find these plans useful.
Pay your premiums annually
Paying the yearly payment ahead also saves money. Insurance companies normally provide an annual payment option or lower monthly payments with a discount.
Know what coverage you need:
Every project has unique insurance requirements. Knowing what you need before purchasing helps you avoid overpaying for coverage. You also need to know the project’s duration to determine the appropriate term length.
Read through the exclusions in your insurance to figure out what is not covered and what other policies you may need.
Finally, make sure you’re the one to buy the builders’ risk coverage. Contractors and subcontractors may be designated insureds if the property owner or developer already has one.
Determine when you need insurance
You will only need a builder’s risk insurance when constructing buildings. Having a policy beyond your project will only cost you unnecessary fees. So, ensure you buy only the policies that you need.
What is builder’s risk insurance?
Builder’s risk insurance protects construction property and supplies while a building project is ongoing. It is also known as “construction insurance.” Regular property insurance will not cover structures under construction since their value at the construction time may not be clear. The full worth may not be easy to calculate until the building is completed. Plus, buildings under construction always have a range of heavy machinery and equipment in and around them per time. As a result, regular property insurance may not make sense.
Builders’ risk insurance covers building projects, including new construction, renovation, and installation projects. Depending on the nature of the project, insurers may further classify this insurance policy as commercial or residential builders’ risk insurance.
What does builder’s risk insurance cover?
Builder’s risk insurance often covers building properties damaged or destroyed by fire, wind, vandalism, car collisions, or other incidents. Some insurance policies may also cover off-site storage and debris disposal.
Unlike many other forms of business insurance, a builder’s risk policy has no standard template. Therefore, the extent of coverage varies widely by the insurance provider. However, here is what to look for in general:
- Materials that may be repaired or replaced: All builder’s risk insurance plans cover the structure being built or renovated and items that may be damaged or lost in transit to the construction site. The following are some examples that your policy may cover with most insurers. If your insurer does not offer coverage for any of the items listed below, you may have to purchase an additional policy to extend your coverage:
- Documents and data: Damaged or lost blueprints, specs, etc.
- Soft costs: architect fees, local government fines, and extra real estate taxes.
- Temporary on-site structures: signs and scaffolds.
- Other covered expenditures in case of property damage: You may be compensated for preventative actions such as debris removal and pollution remediation. If you’re fixing a green building, your insurance may even pay the recertification expenses.
Builder’s risk plans typically cover all hazards unless those are explicitly excluded in the policy. The insurance company will determine the replacement value of damaged or lost goods. Some companies pay you the actual value of the building, which in most cases means higher premiums. Others tend to pay the replacement value of the building, which results in lower premiums.
Builders risk insurance requirements
Builder’s risk insurance is not compulsory by law in the United States. However, it is critical for building and contracting organizations since it protects their job. Your customers may request that you have this insurance before you begin work, and it may be mandated by municipal construction standards in certain cases as well.
Besides, building contractors need this insurance policy to protect them against dangers that might result in a lawsuit. Construction companies risk losing their company, assets, and reputation if they do not have the proper insurance coverage in place.
Insurers may want to see your business information before offering you this policy, such as your construction license.
What isn’t covered by builders’ risk?
Typical exclusions from builder’s risk insurance plans include:
- Employee theft: Invest in a business crime coverage to cover employee theft.
- Damage to work vehicles: Commercial auto insurance covers work cars.
- Earthquake and flood damage: builders’ risk insurance plans typically do not cover these events. To cover these events, you need a distinct coverage.
- Manufacturing problems: manufacturing problems need general liability insurance to cover defense and settlement expenses.
- Design issues: Professional liability insurance protects you if you’re accused of a design blunder.
- Usual wear and tear: In general, an insured loss must be triggered by an unforeseen event, and wear and tear damage is a predictable event.
Builder’s risk plans also exclude post-project damage. After construction, your coverage ceases. Then you may get coverage comparable to builder’s risk insurance by:
- Commercial property insurance: This insurance policy protects you from theft, fire, harsh weather, and other natural disasters.
- Inland maritime insurance will cover you for your materials and goods in transit.
Who needs builders’ risk insurance?
Anyone with a financial stake in building construction or renovation project should consider having a builder’s risk insurance. People in this category include:
- Development and investment companies
- General contractors
- Institutional lenders
- Building owners/ occupants
- Project architects or engineers.
When numerous parties are involved in a building project, the general contractor is generally the principal insured. Additional insureds include the building owner and subcontractors. The building owner may have to buy the coverage depending on the contract.
Builders risk insurance companies
Buying builders’ risk insurance can be a daunting task since so many companies offer the policy. To avoid the stress of filtering through different companies’ policies and quotes, you can check our list of the best builders’ risk insurance companies in 2022.