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Builder’s risk insurance: A necessary part of business formation

When forming a construction company here in California or elsewhere, certain items will need careful consideration. Insurance is one of those items since it helps protect the company from the losses covered in the policies. For instance, builders risk insurance is a necessary part of construction projects and may be required in order to remain in compliance with construction law requirements.

Also referred to as “course of construction” insurance, builder’s risk insurance covers the materials and equipment the company will use on a particular project along with the building under construction. It would be advisable to purchase a policy that covers 100% of the project’s anticipated costs. This type of policy covers earned profits and labor costs, theft, property damage, man-made disasters and the perils of nature in addition to property damage.

A builder’s risk policy does not cover liability risks, or injuries and accidents that may occur on the site. These policies will usually last anywhere from three to 12 months depending on the project. If the structure is not complete within this time, it may be possible to extend the policy, but usually only once. For a cost of 1 to 3% of the total cost of the project, it would be well worth it and is often required.

Builder’s risk insurance is an important part of every project, but a construction company will need to purchase other policies as well — some general policies and others specific to a particular job. Deciding what policies to purchase and when can be a daunting task. Instead of trying to sort through all the choices alone, and possibly missing important coverage, it would greatly benefit any California builder starting a new company to work with an experienced construction law attorney for this and other formation issues.