How Much Builder’s Risk Insurance Does a Construction Project Need?
What Should Be Considered When Setting a Builder’s Risk Limit?
The insured value should reflect the amount at risk during construction and the estimated cost to restore the project if a major covered loss occurs.
Construction Materials
Lumber, roofing, flooring, windows, fixtures, electrical components, plumbing materials, appliances, and other items incorporated into the project can represent a significant portion of the insured value.
Labor & Completed Work
The value of work already performed may need to be considered because a covered loss can destroy labor that must be completed again.
Anticipated Completed Value
The project limit is often connected to the anticipated cost of the completed construction rather than the land value or the property’s expected selling price.
The Original Budget May Not Be the Final Project Value
Construction projects can change after work begins. Material prices may increase, labor costs can rise, design changes may be approved, and additional work can be added through change orders.
Added rooms, upgraded finishes, design revisions, structural changes, or other approved work can increase the project’s total construction value.
Changes in the cost of lumber, steel, roofing, equipment, fixtures, and other building materials can affect the amount needed to rebuild after a loss.
Wage changes, subcontractor pricing, skilled-labor availability, and additional work can increase the overall project cost.
Extended construction periods may increase certain project expenses and can require the insurance period or other policy provisions to be reviewed.
What Should Be Reviewed Before and During Construction?
Builder’s Risk coverage should reflect the actual construction project, including the estimated completed value and meaningful changes that occur before completion.
Review the contract amount, scope of work, labor, materials, contractor costs, and other project expenses that may contribute to completed value.
Renovation projects may involve an existing building in addition to new construction, and the policy should clearly address how existing property is treated.
Determine whether qualifying construction materials stored away from the jobsite or being transported are included and what limits apply.
Review the insured value after major change orders, cost increases, delays, design revisions, or other changes that materially increase the project.
Does Your Builder’s Risk Limit Still Match the Project?
Best Formula Insurance can help property owners, developers, contractors, and other project stakeholders review Builder’s Risk limits, completed value, materials, labor, renovations, project changes, and other construction insurance considerations.