How to Calculate Builder Risk Insurance?

Beginning a construction project, it is important to secure your investment against the unknown. Course of construction insurance, also known as builder risk insurance, can protect your project during construction or renovation against theft, vandalism, fire, and some types of weather-related damage. However, how do you determine the amount of coverage you really need? The calculations of builder risk insurance coverage does not necessarily need to be complicated, but it does involve taking a close look at your project information.

What is Builder Risk Insurance?

It is worth knowing what builder's risk insurance coverage includes before getting down to calculations. This policy is meant to cover buildings and structures that are under construction, materials, fixtures and equipment. It is also able to cover labor costs and even some temporary structures on-site. Nevertheless, it does not usually include accidents that involve employees, liability issues, or wear and tear.

Step 1: Calculate the Total Completed Value of the Project

The initial step in calculating builder risk insurance is determining the total completed value of your project. This should cover:

• Materials: Structural steel to roofing materials.
• Labor costs: Contractors, subcontractors, and skilled labor wages.
• Soft costs: Architectural plans, permits, engineering charges, and in some cases, interest on loans in case they are directly related to project delays due to covered events.

As an example, suppose that your project has material costs of $500,000, labor costs of $300,000, and soft costs of $50,000, then your total completed value would be 850,000.

Step 2: Consider Variable Material Costs

The cost of construction may vary rapidly, and material prices fluctuate. It is prudent to add a buffer, which is usually 5 to 10 percent, to your total value of completion. This makes sure that your builder risk insurance coverage keeps pace with any cost escalations.

In our case, adding 10 percent to 850,000, you would get 935,000 as your adjusted value.

Step 3: Coverage Period

The length of the policy affects your premium. The builder risk insurance is commonly sold in threes, sixes, or twelve months, depending on your project schedule. You might have to renew or extend coverage in case your project is long-term, adding to the overall costs.

Step 4: Evaluate Risk Factors

The insurers take into account several risk factors to determine your premium:

• Project location: Rates may be higher in areas subject to hurricanes, floods or earthquakes.
• Type of construction: Wood-frame projects can be more expensive to insure than steel or concrete structures due to the higher risk of fire.
• Security: Installing surveillance cameras, fencing and lighting can help lower your rate.

The riskier your project is, the more your builder risk insurance coverage is likely to cost.

Step 5: Obtain Quotes of Different Providers

Now that you have your total completed value and know the risk factors of your project, ask several insurers to quote. This will provide you with a better understanding of what is competitive in the market. Make sure that you are comparing not just the price, but also the coverages and exclusions of each policy.

Step 6: Take into Account Deductibles

An increased deductible may reduce your premium, but you will have to pay more out-of-pocket when making a claim. The important thing is to find the right balance between affordability and financial protection.

Suppose you have a total completed value of 850,000. You put a 10 percent buffer on materials ($85,000) and your adjusted value is $935,000. The weather risks are moderate in your area, and the type of construction is concrete, which usually lowers the premiums. Quotes come back at about $2,500-$3,500 for a 12-month policy, depending on deductible choices.

Through the above steps, you have not only been able to calculate your builders risk insurance requirement but have also been in a position to ensure that you are getting the right insurance cover on your investment.

Dunbar Bedding Field Protects Your Project

At Dunbar Bedding Field, we assist contractors, builders and property owners in obtaining builder risk insurance cover that meets their specific requirements. Our team is familiar with the special risks of construction projects and collaborates with best rated insurers to ensure the best protection at the most affordable rates.

Do not expose your project to avoidable risks, get a customized quote on builder’s risk insurance today and protect your investment throughout the process.