The Ins & Outs of Builders Risk Insurance
What is Builders Risk Insurance?
Builders risk insurance (also referred to as course of construction) is a specific type of property insurance used for insuring a building that is currently under construction. Not only that, but it may also cover the materials and tools that are going to be used for the construction of the site. The policies for this type of insurance are often written in terms of three months, six months, or twelve months and will pay for the damages up to a specific coverage limit. Though the coverage limit must accurately show the complete value of the structure that is being built that includes the materials used to construct the building and the labor costs that are associated with it. It should be noted that the value of the land that the structure is being built on is excluded from the coverage limit.
Why it’s important for business owners
When you want to open up a new business, whether it be a restaurant, clothing store, or a medical practice, there are many things you’ll have to take into consideration to ensure everything goes smoothly and you build a successful business.
- You first have to pick a part of town that you know will be popular with your target demographic.
- Decide how many employees you’ll likely need to employ along with the positions you’ll need to recruit for.
- Pick which vendor you’ll go with that will supply you with the best deals along with the highest quality of supplies.
- Choose a building or plot of land that you will have to either renovate or build your business from the ground up on.
- Choosing the platform in which your managers will create employee schedules and where your employees will receive their schedules. If you’re stuck on this step, click on the button below to begin your trial of Deputy and see for yourself what it can do for your business.
The point regarding building your business from the ground up is where many business owners experience some confusion, when you decide to construct your business’s building from the ground up, you’re going to want to protect your location from any threats that could happen during construction. Threats that can negatively impact construction that are also typically covered by builder’s risk insurance are:
Keep in mind that this list is just a brief overview of what builders risk insurance typically covers and that they vary depending on factors like the provider along with the location. For example, if you wanted to build a store in a coastal area that is prone to flooding and water damage, a builders risk insurance policy out there will likely cover flooding and other issues that are susceptible to buildings in that area.
While we covered what they include, we should take some time to touch on issues that arise that are typically excluded from the policy. These include:
- Employee theft
- Government interference
- Penalty clause
- Voluntarily leaving the business
- Any breakdowns that are due in part to mechanical issues related to the equipment
Once again, this varies a lot from policy to policy, so make sure that you analyze yours closely to ensure you understand exactly what your policy will cover along with what it won’t.
Is Builders Risk Insurance required?
Technically speaking, no. The only way in which it would be required is if you’re using financing to help pay for the venture, in which the bank or vendor will most likely require you to get the insurance so that their investment is protected. But other than that, you’re free to not insure your construction to your heart’s desire. That said, not getting Builder’s Risk insurance is a terrible business move that will put your entire venture at risk. No matter what you end up having to pay for your policy, it’s always worth the peace of mind of knowing that your business will be protected if anything bad happens. Just as not insuring your car or home would be seen as irresponsible, not insuring the building that you’re investing a substantial amount of time, money, and effort into should be seen as a risky move that will put your business at risk.
Being a successful business owner means making the decisions that will protect your company and ensure the continuation of your brand. By making the investment into builders risk insurance, you’re making the first move that will set the tone of you doing what you have to as a business owner to be successful. So although Builder’s Risk Insurance isn’t technically required and you’re allowed to continue with the building of your business without it, not investing in a policy is a very risky move that will put your dreams at risk. In short, do yourself a favor and buy a policy.
b>Pricing for policies
Now that you’re sold on why Builder’s Risk Insurance is so instrumental for ensuring that the building of your store goes on without a hitch, we’re going to touch on what you can come to expect to pay for these policies.
To put it simply, the amount you pay will vary wildly depending on a number of different factors. Some of these factors include the type of structure you’re building, the location it’s being built in, and how it’s being constructed. That said, you can expect your premiums to be anywhere between one to four percent of the total cost of the entire project. The difference between a premium that’s one percent and one that’s four percent is that the latter will typically have much greater risk exposures that warrant a more expensive premium. For example, if you’re opening an ice cream shop in the food court of a mall, then you can expect to pay a premium that is one to two percent of your total construction costs. On the other hand, if you’re building a bar right on the beach during hurricane season, then you can come to expect an expensive premium that will be four percent or even five percent depending on how risky the situation is. This is because, in the first example, there aren’t many things that can happen that will put the construction of the ice cream shop at risk other than theft. The bar on the beach, on the hand, has a much higher chance of experiencing water damage along with having to worry about the possibility of a hurricane coming along and destroying everthing. This is why the prices of premiums vary so wildly, the construction of certain businesses just involve a lot more risk than others.
To give you a better idea of where your business will stand in all of this, take a look below for a more detailed description on the three most important factors regarding your business.
>As the examples from above helped demonstrate, the location of your business will be one of the biggest factors in determining your premiums. This is because certain areas are more prone to experience damage from natural disasters like tornadoes, hurricanes, wildfires, earthquakes, flooding, etc. In the example of the bar being built on the beach, they will likely be required to purchase flood insurance, which could add over 1,000 dollars to their premiums.
- Type of Construction
You may be thinking,
“How many types of construction could there possibly be?”
When we say type of construction, what we mean is whether you’re constructing an all-new business from the ground up or are just doing a renovation. While you may think that new constructions would cost more than a renovation, it’s actually the other way around. This is because a renovation has a number of extra risks that are specific to it. For example, the entire structure of the building can become un-stabilized and collapse from within during a renovation, adding a number of new costs that will add up.
- Construction materials and length of the project
The last important factor that will have a large impact on your premium is the type of construction materials used for building the business along with how long it will take to assemble everything. If your store is being built with strong steel frames that are unlikely to bend or break, then they will contribute to a lower premium because there’s less chance of them breaking. If you’re using very thin wood or a similar weaker tool to build your structure, than your premiums will be higher because they’ll be more likely to break, which means that whoever issued the insurance will end up having to pay to fix it.
When it comes to the overall length of the project, it only makes sense that you’d be charged more depending on how long the construction will take to be finished. With a longer duration comes more chances of something bad happening, so if you want a cheaper premium, do what you can to speed up the construction as much as you can.
What to know when applying for builders risk insurance
Just like when you’re looking to get a loan from the bank or are shopping for car insurance, you need to have your information prepared and on hand so you’re able to quickly reference it whenever you need to. That said, the procedures for getting builders risk insurance is a bit different than the procedures for getting other types of insurance. Take a look at the steps below that detail what you should do to adequately prepare yourself for applying for builders risk insurance.
- Gather all relevant information regarding the project
The only way for a provider to give you relevant information regarding how much they’ll charge to provide builders risk insurance is if you give them all the information they’ll need to make an assessment. While different providers will need different information, the below list will cover the primary information that everyone wants to see.
Location of the construction
Type of construction (renovation, new construction, etc.)
Size of the project (this includes how much the project is expected to cost along with how big the location will be)
Protection (some providers will want to know if you have guards on hand, proximity to a fire hydrant, along with other pieces of information regarding how protected the project is)
- Duration of the project
Next, your provider will want to know how long the construction will take to complete. This is because a builder’s risk policy is typically written for either a three, six, or twelve month term. Also, if the building ends up not being done in time, it can be extended and coverage can continue for up to 90 days after the intended completion date.
- See if an “all-risks” policy would be a good fit for you
An “all risks” policy is used to describe a policy that covers the losses from any circumstance aside from those that are specifically excluded. This policy is the safest bet for your builders risk insurance policy because it provides the most coverage and will ensure that you’ll rest easy knowing that your construction will be taken care of should anything happen.
Other types of insurance to consider
Now that you’re filled in on why and how builders risk insurance is so important during the construction of your business, you should also consider adding these other types of insurance policies so you know you’re protected on all fronts in regards to your business.
Commercial auto insurance: Covers any bodily injury, medical payments, property damage, as well as much more for you and any of your employees that get injured if your company vehicle gets into an accident.
Professional liability: This covers all injuries, legal costs, and property damage that happens while you or any of your employees are on the job.
Workers compensation: While most states will require that you purchase this for your employees, you should still get it if your state doesn’t require it. It works to cover your employees for all work-related injuries and illnesses.
Builders risk insurance is crucial during the construction of your business because you need a way to protect your building in case anything bad happens that could damage your equipment and/or building. Go over the information above then research providers nearby that can help you get the builders risk insurance policy that’s the perfect fit for your business.
You should also take a look at Deputy, the employee scheduling platform that ensures your managers won’t be spending all their time making schedules and can focus on strengthening your business as much as possible. To take a look for yourself, click on the button below to begin your own trial.