If you’re constructing a new home or remodeling an existing building, you will most likely be required to purchase a builder’s risk insurance policy. A builder’s risk insurance policy is also frequently referred to as COO (Course of Construction). The insurance can be purchased by the contractor themselves or by the building owner.

What is a builder’s risk insurance policy?

A builder’s risk insurance policy is used to insure a property which is being built or is undergoing a major renovation. This building can be a residential home, a cottage, a commercial building, or even a condo building.

The uniqueness of the policy is to protect the building during all stages of construction. The policy should be purchased before construction even begins. The coverage amount selected is based on the total estimated value of the completed project. This cost can be calculated based on the architectural drawings and estimates from the tradesmen required.

If an unfortunate event occurs which results in a claim, the property will be covered whether it is in the early stages of construction or close to completion.

The difference between new construction and a renovation

The most common traditional policy that consumers are familiar with is a builder’s risk policy to insure new construction that is being constructed from the ground up! This type of policy is applicable for construction undertaken on a vacant piece of land. The amount of coverage is for the complete cost to build the structure from start to finish.

A large amount of planning often occurs prior to a homeowner remodeling their residence – the size of the kitchen island, type of hardwood flooring, or the size of the fridge. Often overlooked in the planning stage is the purchasing of a builder’s risk insurance policy, due to the common misconception that a house is already insured under a typical home insurance policy. The issue is that a typical home insurance policy will not cover the increased risk of a property that is undergoing a renovation. The policy is set up to insure the existing structure as well as the additional cost going into the renovation or construction project.

What factors into the price of a builder’s risk policy?

The type of project and the complexity of the project are major factors in the overall price of the policy. A frequently built residential home will pose less risk compared to an existing structure under major renovation, and therefore will be less expensive to insure.

The contractor’s experience, skillset, and past project history also play a significant role in the price of the policy. Less risk is generally involved when a skilled and qualified contractor with a history of building the same type of project is managing the project compared to a project managed by the homeowner or by a less experienced contractor.

Frequently overlooked, however still a significant component of what makes up the price of the policy, is the location of the project. Is the construction taking place on the congested city streets of downtown Toronto or in the northern suburbs with large lots and plenty of space for the tradesmen to work?

The cost will greatly depend on the type of coverage you receive and the applicable exclusions. This can be tailored according to the client’s specific circumstances, as there is a large selection of offerings that vary among insurance companies.

The bottom line is that an active construction site involves a large number of risks, risks that would not be present were construction not taking place. These risks lead to potential liability claims, which you need to be insured against.

There is no one-size-fits-all type of builder’s risk policy. Each construction project is unique and has its own set of challenges. At Ambrosino Insurance Westoak Insurance, we will tailor a policy to meet your specific needs and ensure coverage against claims during your construction project, whatever the size, scope, or location!