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January 4, 2022

Who Pays for Builder’s Risk Insurance?

Construction is known to be one of Canada’s most dangerous industries. In addition, there are also risks of massive financial loss due to equipment theft, damage to the structure, project delays, and so on. Because of this, builder’s risk insurance is vital.

This type of insurance covers the building/structure while under construction – as well as the tools/equipment on the project site. Depending on the project, the builder’s risk insurance policy can be purchased either by the property owner or by the general contractor working on the project.

If you would like to learn more about this must-have construction insurance type, read on. We’ll talk about what builder’s risk insurance is, what it covers, who pays for builder’s risk insurance, and your next steps.

Let’s begin!

A building under construction that needs builder’s risk insurance

What is Builder’s Risk Insurance and Why is It Purchased?

Before talking about who pays for builders risk insurance, here’s a section that covers the fundamentals.

Builder’s risk insurance, also known as Course of Construction insurance, is designed to protect a general contractor or property owner from financial loss in the event that the unfinished building/structure is subjected to damage from external factors.

Builder’s risks insurance can also provide coverage for materials, machinery, equipment, and tools in the project site. In the next section, we will talk more about the coverage points of builder’s risk insurance.

There are two main reasons why purchasing builder’s risk insurance is necessary:

  1. Financial protection – for both property owners and general contractors, damage, theft, or vandalism equates to financial losses. Builder’s risk insurance is here to minimize financial loss in such instances.
  2. To earn the trust and preference of clients – for general contractors, securing builder’s risk insurance can help the construction business get the trust and preference of more clients.

What Does Builder’s Risk Insurance Cover?

Builder’s risk insurance provides coverage for the structure under construction, temporary structures needed, the materials used, and the tools/equipment used for the project.

The Structure Under Construction & Its Materials

Structures under construction are susceptible to damage from a number of external forces such as earthquakes, hurricanes, lighting, and so on. Criminal elements in the area may also vandalize the project site or steal materials that are not yet affixed to the structure. Lastly, damage can arise from unintended explosions and incidents of fire.

With the right builder’s risk insurance policy in place, you, as the property owner or general contractor of the project, can have protection in the face of the above incidents.

Temporary Structures and Scaffolding

Similar to the main structure being built, temporary structures can also be subjected to damage from external forces. In fact, temporary structures and scaffolding generally come apart easier and are therefore readily damaged in the face of unforgiving weather, earthquakes, and so on.

In addition, scaffolding is one of the most commonly stolen items in construction sites. This is why having a builder’s risk insurance policy is a necessary step to preventing financial loss in case of damage, vandalism, or theft involving temporary structures and scaffolding.

The Tools/Equipment

Hand tools, power tools, and heavy equipment that are used for a project can also be damaged by various external sources. In addition, they are typically never permanently affixed anywhere and can thus be readily stolen by criminal elements looking for quick cash.

Builder’s risk insurance will protect you from financial loss connected to theft or damage to tools and equipment.

Demolition and Cleanup Costs

When a structure under construction is badly damaged, it may be necessary to do a demolition, clean-up, and do-over of the damaged part/s. Builder’s risk insurance covers you in these instances as well.

Soft Costs Associated with Project Delays

On top of repair, replacement, and demolition costs, builder’s risk insurance also covers the soft costs associated with project delays. These soft costs can include lost rental income, lost sales, and so on.

 An unfinished residential building that is ravaged by an earthquake but would have been covered by builder’s risk insurance

Who Typically Pays For Builder’s Risk Insurance?

So, who pays for builders risk insurance? Depending on the nature of the project, it is usually the property owner or the general contractor who purchases this type of insurance.

Property Owners

Property owners typically need builder’s risk insurance when they do not hire a general contractor for the project – and thus act as their own contractor for the project.

Essentially, property owners in this scenario are the ones at risk in case the renovation site is damaged by external elements or becomes a target for theft and vandalism. Hence, they need builder’s risk insurance.

General Contractors

Clients looking for a general contractor may require the contractor to get builder’s risk insurance. This is because of the following reasons:

  • Builder’s risk insurance gives clients the assurance that a project is more likely to get back on track – even after it sustains damage or is subjected to theft/vandalism
  • Builder’s risk insurance can also shoulder soft costs associated with project delays – such as lost rental income or lost sales.

However, builder’s risk insurance is not solely for building client trust and preference. Contractors who have this type of insurance also benefit by being protected from financial loss, in the face of structural damage, theft, or vandalism.

How Much Is Builder’s Risk Insurance Policy?

The cost of a builder’s risk insurance policy would depend on the value of the project once it is completed. Generally, this type of insurance costs around 1-4% of the completed project’s value.

Get Tailor-Fit Builder’s Risk Insurance For Your Project

That wraps up our article on who pays for builders risk insurance.

By understanding this type of insurance further, you’ve already taken another step to success. From here, we, at Contractors Insurance are here to help you with all your insurance needs.

Contractors Insurance is an Ontario-based, award-winning insurance brokerage firm that specializes in providing tailor-fit insurance for contractors, tradespeople, and professionals. We can put together an insurance plan that addresses your unique risks.
Ready for effective and hassle-free insurance? Contact us today or get started with a free quote!


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