Who Pays for Builder’s Risk Insurance?

Builder’s risk insurance is a type of property insurance that protects projects that are not yet completed. For example, if a bad storm destroys a project while it is in progress, builder’s risk insurance will compensate for the damages so that the project may be continued even after a disaster. 

There are typically two parties that may purchase and carry a builder’s risk insurance policy: a general contractor or the project owner. 

General Contractors Insurance 

General contractors may often invest in builder’s risk insurance in order to protect their work tools and time. Builder’s risk insurance will help compensate the contractor for equipment and tools that may have been left on the job site. It covers against theft, vandalism, wind, hail, rain and other causes of damage or destruction. 

Builder’s Risk Insurance for Project Owners 

Project owners and developers also have a large investment in a construction project. If a general contractor doesn’t carry builder’s risk insurance, a disaster could set a project back by months as well as cost the owner tons of money. 

For example, say a bad storm sweeps in three months into a project. Rain and hail ruins the exposed walls of a new hotel being created. The general contractor doesn’t have builder’s risk insurance and most of their equipment was ruined in the storm. While they may have some insurance to cover their equipment, this means the project owner will have to pay for new materials and spend more time as the project is torn down and rebuilt. 

With builder’s risk insurance, the project owner can receive compensation for the damaged or destroyed project materials that were not yet completed. This way, you don’t have to start all the way from square one after an incident. 

Before starting a project, each party should make sure they are on the same page, especially when it comes to insurance. There is no harm with both parties carrying insurance to cover their potential losses, but it is hazardous for neither party to have any insurance. 

Project owners don’t always have builder’s risk insurance and their limits may not be enough to replace all of the tools or equipment a contractor loses. Likewise, general contractors should have insurance that covers the project in progress as well as their tools and equipment. 

Safe is better than sorry, and every party with a financial stake in a project should take accountability when it comes to insurance.