Construction projects are inherently risky, with potential hazards like vandalism, fire, theft, and weather-inflicted damages always looming, threatening to slow down or halt a project’s timeline.
Two important kinds of coverage to understand in construction in order to manage and mitigate risk are builders’ risk, or course of correction insurance, and homeowner’s or property insurance. While both kinds of policies offer protection, they serve different purposes depending on the stage of a property’s life.
In this blog, we’ll differentiate the two, provide examples of when each is necessary, and answer other common questions related to insurance and compliance in construction. Additionally, you can learn more about our Certificate of Insurance Services and how they streamline your insurance documentation needs below.
What Is the Difference Between Builders Risk and Property Insurance?
Let’s break down the difference between these important policies and what they cover.
Builders’ risk insurance is designed to protect construction workers and stakeholders from risks that could occur to a building while it is being constructed or renovated. It is a temporary insurance plan that provides coverage for any damages or losses to structures or materials throughout construction, such as from fires, thefts, vandalism, and natural disasters.
Property insurance, or homeowner’s insurance, on the other hand, is intended for more long-term protection for established buildings. Once the construction phase of a build ends, the relevant builders’ risk policy will terminate, usually to be replaced immediately by property insurance. This policy provides coverage for properties from similar perils, including fires, thefts, vandalism, and weather-related damages.
To put it into a tangible example, imagine a small business that wants to establish a brand-new brick-and-mortar location. During the construction phase of the building, they’d invest in builders’ risk insurance to protect the building-in-progress and any needed materials. Once the structure was erected and construction officially done, they’d go back to their insurance provider to obtain a property insurance policy to protect the completed building and its contents.
What Is Another Name for Builders’ Risk Insurance?
Builders’ risk insurance, while an extremely important kind of coverage, goes by different names across the construction industry.
One of the more common alternatives is “course of construction insurance,” which is a fitting name as it refers to the phase when the policy applies, throughout the course of a building’s construction. In some regions, it may also be referred to as “construction all risk insurance.” This one also makes sense, since the policy protects against a wide range of risks associated with construction projects.
The name that builders use to refer to builders’ risk insurance will depend on various factors, such as the region of construction. For example, in states like Texas and Florida, where there is a high volume of residential and commercial construction projects, course of construction insurance is the more commonly used term.
Is All Risk Insurance the Same as Property Insurance?
Property insurance is sometimes conflated with all risk insurance, which is coverage that provides protection for a broad range of risks besides any that are specifically excluded from a policy.
Some property insurance policies are considered named-peril policies, meaning they only cover risks that are specifically listed in the policy. In comparison, all-risk insurance covers everything except what is excluded. All risk insurance provides a higher level of protection since it is not limited to specific named perils, making it a more comprehensive option for property owners.
All risk insurance policies will generally be more expensive than other property insurance policies due to their broader coverage. Homeowners should weigh their needs for comprehensive coverage with the associated costs. For example, homeowners in areas prone to certain natural disasters might opt for an all risk policy to ensure they are covered for specific risks despite higher premiums.
What Is the Purpose of the Builder’s Risk Policy?
The main objective of builders’ risk insurance is to protect building investments while they are being worked on. It is designed to mitigate the many risks associated with projects by covering the costs associated with repairing or replacing damaged property during construction.
Building insurance is actually required in many different scenarios. It’s a good idea for anyone in charge of a construction project to obtain, and will often be required by lenders as a condition of their loan to protect their financial interests in the project.
Project owners and general contractors also purchase this coverage in order to protect their investments and fulfill contractual obligations. While they are the parties typically in charge of ensuring coverage, the policy can also be structured to cover all parties involved in the construction project, including subcontractors and suppliers, if desired.
Protect Your Buildings, Workers, and Reputation with Insurance Compliance Best Practices
Whether it is required by a lender, a project owner, a general contractor, or to maintain compliance in the construction industry with relevant regulations, builders’ risk insurance is yet another crucial policy to understand in the world of construction. It provides protection for structures and materials throughout the building phase, granting teams peace of mind and allowing construction projects to proceed with confidence.
Ready to learn more about how to ensure protection and compliance for your construction projects? Our team of experts can help. Reach out today to learn more.