The Ultimate Guide to Course of Construction (Builder’s Risk) Insurance
A construction site is a dynamic environment, representing both immense potential and significant financial risk. From the moment ground is broken until the final handover, the entire project is vulnerable. This is where Course of Construction (COC) Insurance, more commonly known as Builder’s Risk Insurance, becomes the single most important policy for protecting your investment. This specialized property insurance is designed specifically to cover a building or structure while it is under construction. This guide will serve as your top resource for understanding what a COC policy covers, what to include for complete protection, and the powerful benefits of this essential construction insurance.
What is Course of Construction Insurance?
Course of Construction insurance is a temporary property insurance policy that protects a construction project from a wide range of potential losses. Unlike a standard property policy which covers completed buildings, a Builder’s Risk policy covers the unique exposures of a project in progress. It protects the “insurable interest” of all stakeholders, including the property owner, the general contractor, and the financial institution funding the project. Coverage begins when the project starts and ends upon completion, when the permanent property insurance policy takes effect.
What Does Course of Construction Insurance Cover?
A Builder’s Risk policy is typically written on an “all-risk” basis, meaning it covers losses from any cause except for those specifically listed as exclusions in the policy. This provides broad protection for the most common risks on a job site.
Core Coverages Include:
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- The Structure and Foundation: This is the primary coverage, protecting the building itself as it is being erected.
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- On-Site Materials and Supplies: Covers building materials, fixtures, and supplies stored on the construction site that are waiting to be installed (e.g., lumber, wiring, plumbing fixtures, drywall).
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- Theft and Vandalism: Protects against the high risk of theft of valuable materials like copper wiring and appliances, as well as malicious damage to the property.
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- Property Damage: Covers damage from a variety of perils, including:
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- Fire
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- Wind and Hail
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- Lightning
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- Explosions
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- Vehicle or aircraft collisions
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- Property Damage: Covers damage from a variety of perils, including:
Common Exclusions: It’s crucial to understand what is not covered. Standard exclusions often include damage from earthquakes, floods, employee theft, and faulty design or workmanship. Liability for job-site accidents is also not covered; that falls under a Commercial General Liability (CGL) policy.
What to Include: Essential Endorsements for Your Policy
To create a truly comprehensive shield, you must tailor your COC insurance with specific add-ons (endorsements) to cover gaps in the standard policy.
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- Soft Costs Coverage: This is a critical addition. If a covered loss (like a fire) delays the project’s completion, this endorsement covers indirect expenses that rack up during the delay. This includes things like additional architectural fees, legal costs, loan interest, and real estate taxes.
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- Flood and Earthquake Coverage: Since these catastrophic perils are typically excluded, they must be added as an endorsement if your project is in a prone area. Lenders will often mandate this coverage.
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- Off-Site Storage and In-Transit Coverage: Protects building materials and equipment that are stored at a temporary location or while being transported to the job site.
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- Debris Removal: Covers the significant cost of clearing rubble and debris from the site after a major loss.
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- Temporary Structures: Provides coverage for items that are essential to the project but not part of the final structure, such as scaffolding, construction forms, and temporary fencing.
The Powerful Benefits of Builder’s Risk Insurance
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- Protects Your Financial Investment: A construction project represents a massive capital outlay. A COC policy safeguards this investment from being wiped out by an unexpected disaster.
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- Required for Financing and Contracts: Virtually all lenders and financial institutions will refuse to fund a construction project unless a robust Builder’s Risk policy is in place. Many construction contracts also mandate this coverage.
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- Provides Comprehensive Property Protection: It is specifically designed for the fluid and high-risk environment of a construction site, covering exposures that no other policy will.
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- Peace of Mind for All Stakeholders: With the right coverage, owners, contractors, and investors can proceed with the project, confident that their financial interests are secure from a catastrophic property loss.
In conclusion, Course of Construction insurance is a non-negotiable component of any construction project’s risk management plan. It is the essential policy that protects a project from foundation to completion, ensuring that your vision can become a reality without the threat of financial ruin.
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Course of Construction (Builder’s Risk) insurance is a specialized property insurance policy that protects a residential building, and the materials and equipment for it, while it’s under construction or undergoing major renovation. It’s essential because a standard homeowner’s policy doesn’t cover a property until it’s completed and occupied, leaving a significant gap in coverage during the building phase.
What It Covers 🏗️
This policy is designed to cover a wide range of potential losses from the moment construction begins until the project is finished. Coverage typically includes:
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The Structure: The physical building itself, as it’s being built. This includes all the “hard costs” like labor and installed materials.
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Materials and Equipment: Protection for building materials, supplies, and fixtures, whether they are on-site, in transit to the job site, or stored at another location. This also often includes temporary structures like scaffolding.
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Perils: Coverage for damage or loss caused by a variety of events, such as:
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Fire 🔥
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Theft and Vandalism 😠
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Windstorms and Hail 💨
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Explosions
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Collapse
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Debris Removal: The cost of cleaning up and disposing of debris after a covered loss.
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“Soft Costs”: Some policies can include coverage for indirect expenses caused by a covered loss and resulting project delay. This could be extra interest on a construction loan or additional permit fees.
Who Needs It? 👨👩👧👦
Anyone with a financial interest in the construction project should be named on the policy. This most commonly includes:
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The Homeowner: The individual building or renovating the home who has the most at stake financially.
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The General Contractor: The company responsible for overseeing the project.
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Lenders: Banks or financial institutions that are providing a construction loan, as they need to protect their investment.
Key Differences from Homeowners Insurance 🏠
The primary difference is the timing and scope of coverage. A standard homeowners insurance policy is for a completed, habitable home and is not designed to cover the unique risks of a construction site. It won’t cover things like theft of materials or damage to a half-built wall. Course of Construction insurance fills this critical gap, providing protection from the first shovel in the ground until the keys are handed over. Once the project is complete, the policy is converted to a permanent homeowners policy.
Cost and Exclusions ⚠️
The cost of a Course of Construction policy is generally a small percentage of the total construction cost. The premium depends on factors like the project’s value, location (e.g., proximity to coastal areas or flood zones), and the materials used.
It’s important to note that most policies have specific exclusions. They typically do not cover:
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Faulty Workmanship or Design: The cost to fix mistakes made by the contractor or flaws in the building’s design.
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Employee Theft: This is usually covered by a separate business insurance policy for the contractor.
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Wear and Tear: Gradual damage from normal use.
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Liability: This is a separate coverage, often a General Liability policy held by the contractor, which covers third-party bodily injury or property damage.
Protect your construction project with Course of Construction (COC) insurance. Sun Insurance offers Builder’s Risk policies to safeguard your investment from theft, vandalism, fire, and other risks.