A lot can go wrong when a building is under construction. Fire, wind, vandalism, theft—all of these are risks faced by a half-finished building or a building undergoing renovation. Contractors need builders risk insurance, but how much and what will it cost? How can you budget for it if you don’t know how much you need?
- What do you need to know to calculate builder’s risk insurance cost?
- Factors that are considered to calculate the builders risk insurance cost
- How much does builder’s risk insurance cost?
- How can I save money on builder’s risk insurance?
- What is and isn’t covered under a builder’s risk policy?
- Best builder’s risk insurance companies
What do you need to know to calculate builder’s risk insurance cost?
The cost of builder’s risk insurance varies according to many different parts of the project. You’ll need to know:
- The cost of the project
- Location
- Experience level of the contractor and sub-contractors
- How long the project will take
- Type of building materials
- Size of the construction site
- Amount of coverage
- Claims history
- Where construction materials are stored
A common rule of thumb is that a policy will cost between 1-5% of the total budget of the construction project. So, if for example, your project is budgeted at $5 million dollars, builders risk insurance will cost somewhere between $50,000 and $250,000 for the entire project length. So if the project takes place in 50 months, the monthly cost of builders risk insurance is from $1,000 to $2,500.
Most construction projects are not this expensive. In our estimate, the average cost of builder’s risk insurance is about $95 a month.
Factors that are considered to calculate the builders risk insurance cost
Several factors are taken into consideration to calculate the builders’ risk insurance cost. We are examining some of those below in detail:
Type of building materials/construction type
One major factor contributing to how much you’ll pay for insurance is what type of construction project and what materials are used to build it. Some common types of construction materials include:
- Frame: a building where the walls, floor, and roof are made of wood
- Joisted masonry: The roof, floor, beams, and supporting joists are made of wood, but the exterior walls are made of concrete or brick
- Steel: the building is made of sheet metal
- Masonry noncombustible: walls are made of brick, stone or concrete, and the roof and the floor are made of a non-combustible material
- Fire resistive: buildings made with materials that are treated to withstand a fire
The higher the risk of fire, the more expensive the building will be to insure. If you misclassify the frame material and the project is damaged by fire, the insurance company could deny the claim. If you aren’t sure, the insurance company will classify your project as frame construction.
Length of project
The longer the project takes, the more expensive it will be to insure. It might be a good idea to include the cost of construction delays in your estimate, just in case. How long a project takes is tied to how big the project is and the experience of the contractors.
Coverage extensions
You can add extensions to a policy depending on what you need. Some common extensions include:
- Protection of the building materials while in transit
- Scaffolding
- Protection of materials while in storage
- Fire department service charge
- Elevators and HVAC systems
- Debris removal
- Pollutant cleanup
- Electronic data
- Replacement costs
- Trees, shrubs, and plants
Depending on your project and where its location, some of these extensions are worth the extra cost. For example, if you’re building in an area with high property crime, adding protection of materials while they’re in storage is a must. If you’re building in an area with known pollution hazards, pollutant clean-up is a good idea.
How much does builders risk insurance cost?
The average cost of builders risk insurance is $95 per month, or $1,140 per year. Most small construction contractors pay between $900 to $2,500 per year for their builders’ risk insurance policy.
This is just the average. Your rate can be different. Be sure to shop around with a few companies or work with a broker like CoverWallet or Simply Business to compare several quotes to find the cheapest one for you.
Learn more at how much does builders risk insurance cost?
How can I save money on builder’s risk insurance?
You can purchase a contractor’s master builders risk policy. These are rolling policies that are ideal for general contractors, as they cover any works in progress and there is no expiration date to worry about. General contractors who oversee one project after another should look into such a policy.
There is often some debate about whether the contractor or the building owner needs to purchase builders risk insurance. Often, it depends on the contract. If the property owner or developer already has a policy, you can get covered as a named insured and you won’t need to purchase your own insurance.
Consider paying for the policy up front. There is often a discount when you pay in full.
The easiest way to save money on builder’s risk insurance is to shop around and compare quotes. You can save hundreds of dollars by comparing quotes from at least three or four companies. Unlike general liability insurance, not a lot of companies offer online quotes for builder’s risk insurance. Consider working with an insurance broker who is familiar with construction and contracting to get the best rates.
What is and isn’t covered under a builder’s risk policy?
A builder’s risk policy usually covers damages that occur due to:
- Fire
- Wind
- Theft
- Lightning
- Vandalism
- Hail
It does not cover things like:
- Earthquakes
- Water damage
- Employee theft
- War
- Government action
- Damage to property left out
- Faulty workmanship
If you are building in an area subject to earthquakes, or if you’re building in a flood zone, make sure you add those risks to your policy. Faulty workmanship is covered under professional liability insurance.
Best builder’s risk insurance companies
We have researched more than 20 companies offering builders risk insurance and here are the best providers that we recommend.
- Simply Business: Best for finding low-cost builders risk insurance coverage
- CoverWallet: Best for comparing several quotes online
- NEXT: Best for fast coverage
- InsurePro: Best for affordable short-term coverage
- Chubb: Best for comprehensive coverage
