What Does Builders Risk Insurance Cover? Everything you need to know

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Learn what builders risk insurance is, what it covers, who needs it, and how it differs from other types of insurance. Find out how to protect your construction project from unexpected losses with this comprehensive guide/PHOTO COURTESY: Facebook

If you are building or renovating a property, you need builders risk insurance.

This is a special kind of insurance that covers your project from start to finish.

It protects you and everyone else who works on your project from unexpected events that could damage your property, such as fire, theft, vandalism, and weather.

Builders’ risk insurance is sometimes called a course of construction or all-risk insurance.

This is because it covers almost any risk that could affect your property during construction.

What’s Covered Under Builders Risk Policy?

A builder risk policy typically covers the following items:

  1. The building or structure itself, including any temporary structures, scaffolding, or fencing
  2. Materials, supplies, and equipment that are used or stored on-site, in transit, or at other locations
  3. The labor costs and profit of the contractor and subcontractors
  4. Soft costs, such as interest, taxes, rent, or legal fees, that may arise from a delay in the project due to a covered loss

The coverage is usually based on the completed value of the project, which is the estimated cost of the project when it is finished.

The policy may also have a coinsurance clause, which requires the insured to carry a certain percentage of the completed value as the insurance limit, or else face a penalty in the event of a partial loss.

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What Does All Risk Insurance Cover?

All risk insurance is a term that describes the scope of coverage of a builders risk policy.

It means that the policy covers any risk of physical loss or damage to the property, unless it is specifically excluded by the policy.

This is different from a named perils policy, which only covers the risks that are explicitly listed in the policy.

Some of the common exclusions in an all-risk policy are:

Wear and tear, deterioration, or corrosion

  1. Faulty design, workmanship, or materials
  2. Mechanical or electrical breakdown
  3. War, terrorism, or nuclear hazards
  4. Earthquake, flood, or windstorm (unless added by endorsement)
  5. Governmental action, seizure, or confiscation
  6. Delay, loss of use, or consequential damages

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What Is an Insurable Interest in Builders Risk Policy?

An insurable interest is a legal or financial interest that a person or entity has in the property that is insured.

It means that the person or entity would suffer a loss if the property is damaged or destroyed.

An insurable interest is required for a valid insurance contract, and it must exist at the time of the loss.

In a builder’s risk policy, the following parties usually have an insurable interest:

  1. The owner of the project, who has invested money and resources in the project
  2. Contractor, who has performed work and supplied materials for the project
  3. The subcontractors, who have contributed to the project under the contractor
  4. Lender, who has provided financing for the project architect, who has designed the project

All these parties should be named as insureds or additional insureds on the builder’s risk policy, to ensure that they are protected in case of a claim.

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What Is the Difference Between a Builder’s Risk Policy and a Wrap-Up Policy?

A builder’s risk policy is a property insurance policy that covers a specific construction project.

A wrap-up policy is a liability insurance policy that covers all the parties involved in a construction project, such as the owner, contractor, subcontractors, and suppliers.

A wrap-up policy is also known as a consolidated insurance program or a controlled insurance program.

The main difference between a builder’s risk policy and a wrap-up policy is that the former covers property damage, while the latter covers liability claims.

A builder’s risk policy protects the insured from losses due to perils that affect the property under construction, such as fire, theft, or vandalism.

A wrap-up policy protects the insured from lawsuits arising from bodily injury or property damage caused by construction activities.

Both policies are important for construction projects, as they provide comprehensive coverage for the various risks and exposures that may occur during the course of construction.

Builder’s Risk vs. Wrap-Up Policy: Key Differences

Feature Builder’s Risk Policy
Focus Protects the property and materials involved in a construction project Protects all parties involved in a construction project from liability claims
Who purchases? Typically purchased by the property owner or general contractor Can be purchased by the owner, general contractor, or subcontractor
Scope of Coverage Covers physical damage to the project materials, equipment, and structures due to covered perils like fire, theft, vandalism, and weather events Covers liability claims arising from bodily injury, property damage, and contractual disputes on the project


However, they are not interchangeable, and they have different terms, conditions, and exclusions.

Therefore, it is advisable to consult with an insurance professional to determine the best coverage options for your project.

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