Builders’ risk insurance is essential for large-scale projects. As a contractor, you may have wondered about builders’ risk insurance. But, on the other hand, maybe you have gone to jobs without it because you are already covered by contractor insurance.
However, it’s critical to understand all the aspects of this kind of specialized insurance, as going without it could do irreparable harm to your company and your reputation.
Of course, every contractor who has considered this type of coverage has wondered, who pays for builder’s risk insurance? The answer to that question can vary on the project, however.
To help you understand more about builders’ risk insurance, what it covers, and who will pay for it, the Contractors Society of America presents the following post.
What is Builders Risk Insurance?
Builder’s risk insurance covers everything that your contractor insurance does not. Generally speaking, contractor insurance protects you, the contractor, and your company from claims made by customers.
For example, if property damage occurs during the project, contractor’s insurance will cover the cost of the damage and protect your company from claims made by the property owner.
On the other hand, builder’s risk insurance goes a step further and protects all parties involved in the project. Say, for example, that a bank is funding your project, and you need to hire subcontractors to complete it; builder’s risk insurance will cover any losses suffered by yourself and these other parties involved.
Builder’s risk insurance will also cover the actual property owner if property damage is incurred during building. It even covers smaller items like your tools and equipment.
In short, builder’s risk insurance is a catch-all policy that includes all entities that have a stake in the project. With such a broad span of coverage, the question then becomes, who pays for the insurance?
Determining Who Pays for Builder’s Risk Insurance
There is no universal answer to the question: who pays for builder’s risk insurance? However, what is certain is that even though the policy can cover many different parties, the cost is not split. In other words, one entity will pay for the policy even if it covers 5 or 6 other entities.
That’s mainly because a single policy will cover a multitude of entities. However, traditionally, the policy is paid for by either the general contractor or the land developer/owner of the property.
The onus of paying for the builder’s risk insurance policy usually falls on one of these two parties because they tend to have the most stake in these kinds of projects.
Who pays for the insurance is usually decided when the details of the project are being worked out by the general contractor and the property owner. That’s why the answer to the question, ‘who pays for builders’ risk insurance?’ is so subjective.
It can depend on the project’s scope, the negotiations between owner and contractor, the relationship between the owner and contractor, the length of the contractor, and the number of parties to be involved.
What Does a Builders Risk Insurance Policy Cover?
While a builder’s risk insurance policy covers a multitude of parties and situations, it doesn’t cover everything. It usually comes down to whether or not a party will take a financial loss if an accident or setback occurs.
For example, an equipment supplier who has already paid for their goods should not be covered in a builder’s risk insurance policy even though they are technically involved in the project.
Architects are another example of a party that should not be included in a builder’s risk insurance policy. Even though an architect is involved in the design of the building, they will not take a financial hit if an accident or setback occurs during construction. However, here are some of the essential things that builder’s risk insurance policy does cover:
- Inclement Weather: Inclement weather, such as rain, hail, snow, and high winds, can cause damage to a building in progress and can delay construction. Builder’s risk insurance policy will cover any weather damage or additional costs incurred due to project delays.
- Tools: If your devices are damaged or stolen while building, a builder’s risk insurance policy will cover the costs to replace the tools.
- Banks: If a bank is funding the project and something goes wrong, this policy will make sure the banks are covered financially.