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Builders Risk Insurance

Builders risk insurance is a specially designed insurance policy to protect builders from loss of their work during construction. Perils covered include fire, lightning, windstorm, hurricane, hail, theft, vandalism etc. Most builders risk policies are written on an “All Perils” basis which means that all perils are included except those that are specially excluded. Common exclusions are earthquake, flood, faulty design, poor workmanship and defective materials, weather damage to property in open, war, terrorism and contract penalty. Certain perils such as earthquake, flood, and terrorism can be added back by endorsement for an additional premium.

Builders risk insurance does not cover liability of the project. Commercial general liability insurance should be purchased by both the owner and contractor to cover public liability for bodily Injury and property damage. Another policy which should be purchased prior to the beginning of construction is Workers compensation insurance. Builders risk coverage also extends to construction materials in transit or stored at a temporary location.

Contractor tools and equipment and construction trailer and autos are not covered by a builders risk policy.

Most builders risk policies are purchased for a dwelling or building built from the ground up, but the insurance can also be purchased for room additions and remodels. As an independent agent located in Dallas, Texas, Porter-Brandenburg Agency is not limited to any one insurance company. This flexibility enables us to select not only the most competitive price but the best coverage value as well. Our Agency is licensed to write insurance anywhere in Texas as well as other states and we principally serve clients in the Dallas and Fort Worth Metroplex including Garland, Plano, Richardson, Carrollton, Farmers Branch, Addison, Frisco, Allen, Wylie, Little Elm, The Colony, Forney, Mesquite, Cedar Hill, Desoto, Duncanville, Irving, Arlington, Grand Prairie, Lewisville, Coppell, North Richland Hills, Grapevine, Colleyville, Keller, South Lake.

How long will it take to complete the building project? Some insurance companies write a policy for a fixed term of one year and the policy can be renewed only in one year increments. Other insurance companies are more flexible and will write the insurance for a six month term and then extend the insurance by the month if construction takes longer. It is wise to know the cost of extension at the time the policy is purchased. Once the project is completed and a certificate of occupancy is granted or the home is occupied, the builders risk coverage ceases and permanent insurance must be written.

There are three categories of loss exposures in a builders risk policy: (1) “hard” cost, (2) “soft” cost and (3) business income or loss of rents. If your construction project is delayed due to a covered peril such as a fire or tornado and you have to rebuild, the basic builders risk policy covers the cost of materials and labor to rebuild often referred to by builders as the cost of “sticks and bricks” or “hard” costs. Most builders risk policies are only designed to cover the replacement of the structure itself. However the buyer of a builders risk policy should not overlook the insurance to cover the “soft” costs and loss or income?

In addition to the cost of materials and labor to rebuild, owners also have “soft” cost exposures which should also be insured because they may be significant especially near the completion of your project. Soft costs include construction loan interest, real estate taxes, advertising, re-leasing expenses, architectural, engineering, consultants, legal, insurance premiums etc.

Builders risk policies may also be designed with coverage to provide for loss of business income and “soft” costs and we recommend that you consider these optional but important coverages.

Builders who build a volume of homes or buildings annually, may be able to purchase a reporting form policy which will allow the premium to be paid monthly. Otherwise, the full term premium must be paid in advance.

Read more about builders risk insurance in our tips blogs:

How do you insure a home, dwelling or building during the construction phase? See part 1.

Do you buy older homes, remodel them, then sell them for a profit? Are you a fixer upper? Do you know what kind of insurance you need for that? See part 2.
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