Small Business Brief


Why You Should Get Builders Risk Insurance

Building projects come with a lot of risks built into them. After all, the longer a project takes, the more likely it is that a natural event will wreak havoc on it.

That means that a smart contractor takes out a bit of insurance against these kinds of problems. It’s not a general liability policy in this case, although every sane contractor has that. In this case, it’s builders risk insurance.

If it’s not a familiar phrase, don’t feel left out. Far too many contractors only learn about it after they experience some disaster on a project that leaves them in a financial bind.

Keep reading, and we’ll dig into what builders risk insurance is and why you might want it.

What Is Builders Risk Insurance?

Builders risk insurance or course of construction insurance protects from property damage under particular circumstances. It protects the building and project during the building phase from things that include:

  • Fire
  • Hail
  • Lightning

The specifics of a builders risk insurance policy will vary based on a project’s need and location. For example, an insurance company might exclude a particular kind of damage if it’s an exceedingly common problem in the area. The reasoning goes that you should include a safeguard against it during the build.

Other Areas of Coverage

While natural disasters can pose a serious risk to any given construction project, it’s not the only kind of potential problem.

Let’s say that you start a project but expect a major change in local ordinances. You might select a policy that includes coverage for code changes. 

Other areas of coverage beyond the building under such policies often include:

  • Equipment damaged by a natural event
  • Manmade disasters like broken water mains
  • Labor costs
  • Building material thefts

Spend some time talking with the insurance agent and get a clear handle on the coverage. You can usually get additional coverage for specific areas of concern.

Why You Should Get the Builders Risk Insurance

In many cases, the property owner takes out this policy instead of the contractor. That’s great for the property owner, but it can leave you holding the bag.

The insurance company might sue you instead of the property owner in a bid to reclaim losses, even if you’re not at fault. If you hold the policy, the insurance will typically prove more cautious about taking legal action against you.

The builders risk insurance cost hovers around 1%-3% of the total project cost. It’s a small price to pay for the protection it gives you.

Builders Risk Policies Protect You

The builders risk insurance policy really is justified protection for your contracting business. It gives you coverage from the real threat of human-made or natural disasters. It also protects you from losses stemming from those disasters, such as labor costs or equipment damage.

Holding the policy yourself helps protects you from overly-aggressive legal action by a surly insurance company.

Looking for other ways you can protect or improve your business? Check out our Business Advice posts.