You are near completion on a new construction project that will provide a much needed financial boost to your building company – pretty essential really as your company has taken quite a revenue hit during recent coronavirus lockdowns and with half your usual crew testing positive.
You turn up on-site at the beginning of the last scheduled week, convinced you’ll be finishing on time and on budget, with your business earning that healthy profit in the process. However….
The air turns a very shocking shade of blue in the cab of your pick-up as you survey the near-catastrophic damage. Burglars have been in and taken everything not nailed down, the security guy is nowhere to be seen, and to top, it all, vandals (masquerading as “street artists,” no doubt) have tagged every professionally rendered brick wall in obscenities that mirror exactly what you’re cursing right now.
Then the realization slowly dawns. Did you update the builders risk insurance policy to cover this project or not? It’s pretty vital that you did, but that nagging doubt remains, leaving you in stunned silence (at least it’s expletive-free…). Did you or not?
A few frantic phone calls later and you’re nearly in tears. Fortunately, of pure, unadulterated relief. You did update the policy, confirmed with both your company sec and the insurance company themselves. Thank the heavens!
Excuse the writer’s license, but this scenario is not only possible, but it also happened. Often, and usually to construction firms looking to cut costs to the bone to stay in budget, and deciding not to do the full builders risk insurance policy that they normally do – thinking of the bare minimum they can get away with. However, they certainly didn’t think of this possibility, as obvious as it is, and it’s going to cost far, far more than the premium they would, and should, have paid in the first place.
Regardless, it doesn’t have to be theft and vandalism – it could be a whole host of other dramas or accidents that you really need to cover yourself for, such as, fire, storm or wind damage, and so on.
Welcome to your “3 Essential Reasons To Have Builders Risk Insurance”:
Builders Risk Insurance is a type of property insurance considered as a highly inclusive policy. These policies cover a property for the duration of any construction project taking place there. Take the example of a house under construction – the same risks can apply during the building process as can happen once the house is completed, eg. fire, theft, and vandalism.
For that reason, and for those managing a construction project, builders risk insurance cover should be considered as an essential part of costs, providing both you and the end buyer with complete peace of mind. The policy protects your interests right now, while the construction is underway.
The majority of builders risk insurance policies protect you in the event of:
- Wind damage
- Vehicle and aircraft-related damage
- Hail, and
- Lightning damage
Furthermore, you can easily extend your coverage to include materials on the property that are not yet in place – often a high-risk cost of the overall project. Lastly, you may think that a general liability insurance policy would cover you for these events – this is often not the case; you are far better covered, financially and legally, with builders risk insurance.
Inclusivity is a key element of builders risk insurance, but it’s not the only benefit. As suggested previously, you can widen your coverage easily (the materials coverage option), making the policy highly flexible too.
Additionally, construction managers can choose the actual coverage period, which can be as little as 6 months or can be extended to, say, 12 months. In certain situations, if the project is long-term, the initial policy term can extend even further than a year. With prior agreement, the insurance provider can cancel these policies on a pro-rata basis once the construction project is complete.
The vast majority of builders risk insurance policies are offered competitively priced to construction companies, making them affordable for the majority of projects. Furthermore, it can be quite legal in some circumstances to move this cost over to the home buyer, again with prior agreement.
Policy costs usually work out to around 1-4% of the entire construction project budget. However, this will obviously vary, not only from project to project but state to state – for example, a property in Connecticut will cost more to insure than a similar value one in California. So remember, the coverage amount of your builders risk insurance policy should reflect the total estimated value of the completed building/structure. To work out your estimated coverage needs, you should add up the cost of the following:
- All construction materials
- Labor, and
- Land value
For the price, builders risk insurance offers great protection from common onsite risks. However, it is important to note that it’s unlikely to cover things like earthquakes, employee theft or water damage from flooding. As with any legal policy, you must always check first.
Peace of Mind – Covered
Builders risk insurance offers 3 great benefits for any construction manager – namely:
- Flexibility, and
Failure to ensure your construction project is adequately covered in the event of common risks, such as theft, fire, vandalism, and so on, is really just setting you up for a fall – and suffering the same fate as the frightened and expletive-ridden construction manager very nearly did at the beginning of this article.