When Is Builders Risk Insurance Required?

Builders risk insurance, also known as course of construction insurance, is a specialized type of property insurance designed to protect buildings under construction. This coverage is essential for anyone with a financial interest in a construction project, including property owners, contractors and lenders. It can provide financial protection against various risks such as fire, theft, vandalism and certain weather-related damages that can occur during the construction process.

Why Is Coverage Needed?

Builders risk insurance may ensure protection for the financial interests of various stakeholders and may even be required for the following reasons:

• Contractual obligations—Many construction contracts mandate builders risk insurance. This can ensure all parties involved in the project are protected against potential losses. For instance, lenders often require this insurance as a condition for financing the project, ensuring their investment is safeguarded.

• Project size and scope—The scale and complexity of the construction project can also dictate a need for builders risk insurance. Larger projects with higher budgets and more intricate designs are more susceptible to various risks, making insurance coverage crucial. Smaller projects can benefit from this protection, especially if they involve significant structural changes or high-value materials.

• Local regulations—Some municipalities or local governments may require builders risk insurance as part of the permitting process. This requirement can help ensure construction projects comply with local safety and financial standards, reducing the risk of unfinished or abandoned projects due to unforeseen damages.

• Owner’s peace of mind—Property owners may choose to secure builders risk insurance to protect their investment or might mandate that another party, such as the general contractor, do so. This decision is often influenced by the owner’s risk tolerance and the value of the project.

Get the Right Coverage

Contact Smaistrla Insurance Agency today to learn more about when you might need builders risk insurance or to get a quote for suitable coverage.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.