Risks and challenges are an inevitable part of any construction project. Whether you’re building a new home or undertaking a major renovation, protecting your investment is crucial. One of the most important steps in safeguarding your project is securing the right insurance coverage. But with various options available, you might be wondering: What is the difference between Builders’ Risk Insurance and Course of Construction Insurance?
These two terms are often used interchangeably in the construction industry, yet they carry subtle distinctions that can have significant implications for your coverage. Understanding these differences is essential for ensuring that your project is adequately protected from start to finish. In this blog, we’ll delve into the specifics of both Builders’ Risk Insurance and Course of Construction Insurance, clarifying their unique features and helping you make informed decisions for your construction project.
For homeowners, navigating the complexities of construction insurance can be overwhelming. That’s why we’re here to break down the details and provide you with key considerations to keep in mind as you plan your project. Want more information on common insurance needs for construction? Read on and explore our series of blogs on certificate of insurance services to ensure your project’s success.
What Is the Difference Between a Course of Construction and Builders’ Risk?
Course of construction insurance is a policy designed to cover structures during and throughout the building process. It protects against physical damages that could occur during construction and can also extend to cover related supplies and materials.
Builders’ risk insurance is essentially another name for course of construction insurance, although one term might be preferred over the other in different regions or contexts. Builders’ risk insurance also provides common coverages like fire, theft, vandalism, wind and hail, lightning, explosions, or impact by vehicles or aircraft.
Neither of these is to be confused with building insurance or property insurance, which covers completed structures.
What Is Another Name for Builders’ Risk Insurance?
In North America, builders’ risk insurance is the most commonly used term for protections granted to structures under construction, even temporarily. However, course of correction insurance is another commonly used term and is sometimes preferred regionally in Europe and Asia.
Additionally, different sectors of construction might use varying terms. For example, on heavy or large-scale industrial construction sites, you might hear the term “erection all risk insurance.” When speaking to international markets, “construction all risk insurance” is often used.
Whatever term you use for this important policy, make sure to prioritize clear communication for all stakeholders throughout the construction process, from purchasing insurance protection to starting and finishing the job.
What Is the Difference Between Builders’ Risk and CGL?
Now that we’ve talked a bit about builders’ risk insurance and other names that could be used to describe that kind of coverage, let’s contrast it with another common insurance policy in construction: commercial general liability.
While builders’ risk insurance is designed to cover a physical structure and related materials while under construction, commercial general liability is aimed at protecting third parties in claims of bodily injury, property damage, or personal injury. This coverage is still related to accidents that could happen during construction but protects third parties rather than the building(s) under construction.
Let’s walk through an example. Say there was a fire on your construction site, unfortunately scorching your building to the ground, as well as a neighboring property. However, your team was smart and prepared, obtaining the necessary coverage to protect you in this scenario.
With builders’ risk insurance secured, you’ve made sure that you won’t have to pay for the reconstruction costs for the burnt building out-of-pocket. With a commercial general liability policy in place, your insurer will also cover the reconstruction costs (and any other legal or medical costs associated) of the burnt third-party-owned property.
Key Considerations for Homeowners
Understand the Limitations of Your Existing Home Insurance
Homeowners should be aware that their standard home insurance policy typically does not cover damages related to construction activities. This can leave you exposed to significant financial risks during a renovation or new build. Therefore, it’s essential to assess whether your current home insurance provides any coverage for construction-related incidents and to take steps to fill in the gaps with a builders’ risk insurance policy.
Assess Your Construction Project’s Unique Risks
Every construction project has its unique set of risks. These can range from environmental factors, such as the location of the construction site, to the specific type of work being done, such as renovations to older properties which might involve hazardous materials like asbestos. Homeowners should work closely with their contractors and insurance providers to identify these risks and ensure that the chosen builders’ risk policy adequately covers them.
Verify Contractor and Subcontractor Insurance Coverage
It’s common for general contractors to handle the purchasing of builders’ risk insurance, but as a homeowner, you should never assume this is the case. Verify that your contractor and any subcontractors have the necessary insurance coverage, including builders’ risk and subcontractor default insurance. Ask for certificates of insurance (COI) to confirm their policies are active and adequate. This step ensures that all parties involved in your project are protected, reducing your potential liability.
Understand Policy Exclusions and Limitations
Builders’ risk insurance policies can vary significantly in terms of what they cover and what they exclude. Common exclusions might include damages due to faulty design, workmanship, or materials. It’s crucial to thoroughly review your policy’s exclusions and limitations so that you know what is and isn’t covered. If necessary, consider purchasing additional endorsements or coverage options to address any gaps that might exist in your builders’ risk policy.
Plan for Potential Delays and Cost Overruns
Construction projects are often subject to delays and unexpected cost increases. Your builders’ risk insurance policy should reflect the realistic timeline and budget for your project. Discuss with your insurance provider whether the policy allows for extensions or increased coverage in case the project takes longer than expected or costs more than initially planned. This foresight can prevent coverage lapses and ensure that your project is protected from start to finish.
Consider Consulting an Insurance Professional
Navigating the complexities of construction insurance can be daunting, especially for homeowners who are not familiar with the industry. Consulting with an insurance broker or a specialist in construction insurance can provide peace of mind. These professionals can help you choose the right policy, ensure comprehensive coverage, and assist in understanding the nuances of your builders’ risk insurance, including any regional or project-specific considerations.
Monitor Your Coverage Throughout the Project
Construction projects can evolve over time, with changes in scope, materials, and even contractors. Regularly review your builders’ risk insurance coverage throughout the project to ensure it still meets your needs. Any significant changes to the project should prompt a reassessment of your coverage to avoid any gaps.
Secure Adequate Coverage for Post-Construction
Once your construction project is complete, your builders’ risk insurance will typically expire. However, it’s important to ensure that the completed structure is adequately covered under your home insurance policy or a dedicated property insurance policy. Transitioning smoothly from construction coverage to permanent coverage is crucial to avoid any uninsured periods where you might be exposed to risk.
The Importance of Adequate Construction Coverage
Ensuring that all parties, including homeowners and general contractors, are adequately covered by insurance policies is crucial for the success and security of any construction project.
You can do so by understanding builders’ risk insurance, also referred to as course of construction insurance and a few other terms, which protects against many perils that could happen to a structure while it’s being built.
Whatever phase of construction you’re in, you can learn more about comprehensive construction coverage with our team of in-house experts. Call today to speak with an expert so you can move forward with your planning with peace of mind.