Builders Risk Insurance: 5 Things to Know About Commercial Remodeling

A surge in neighborhood small business developments is underway, which means new opportunities for you!

Whether the project is valued at $1 million or up to $75 million, the US Assure Builders Risk Plan insured by Zurich provides flexibility to cover a wide range of commercial risks. Our commercial remodeling insurance can be tailored to meet the varying needs of clients and projects. Before you issue your next policy, here are five things agents should know.

#1: Why do you need a commercial remodeling policy?

Although the owner or contractor may already have a permanent property policy, renovations may be limited or excluded. Those coverage gaps could lead to serious financial implications should a loss occur.

Builders risk insurance (also called course of construction insurance) protects a person's or organization's insurable interest in materials, fixtures and/or equipment to be installed during the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.

Some of the basic and automatic coverages automatically included in our basic builders risk policy that may not be covered by a permanent property provider include:

  • Theft of building materials
  • Vandalism and arson
  • Collapse
  • Property in transit
  • Debris removal
  • Backup of sewers, drains, or sumps

Each policy can be tailored to meet the specific needs of your client, include the increase of sub limits in many cases.

Some optional coverage endorsements include:

  • Soft costs
  • Business income and extra expense*
  • Contract change order
  • Rain, snow, sleet and ice*

*For commercial projects only

#2: What’s the difference between a renovation and a restoration?

A renovation is an existing structure being remodeled and changed, replacing old pieces with new ones. Renovations encompass additions, alterations, improvements or repairs — modifications often performed to keep up with the latest design trends.

In contrast, restoration refers to returning an existing structure to its original condition.

#3: What types of commercial remodeling projects are eligible?

Our commercial remodeling policy can cover anything from offices and retail shops to government buildings, hospitals and schools valued up to $75 million. The types of commercial remodeling projects are split into three distinct categories:

  • Basic remodel: changes to the interior only e.g., replacement of fixtures, cabinets and flooring
  • Minor structural remodel: modifications to interior and exterior, e.g., doors, windows, roof replacement and ground floor additions
  • Major structural remodel: repair, replacement or removal of load-bearing walls or foundation of stories; adding new stories, stairways and elevators, etc. Stamped engineering plans must be provided to our Underwriting team.

The US Assure Builders Risk Plan insured by Zurich requires that a general contractor or a remodeling contractor with at least two years of project-related experience oversee the construction. If the property owner has the appropriate project experience, they are qualified. However, the project may be subject to other underwriting guidelines if the property owner is performing the work.

#4: What types of commercial policies are available?

For the Builders Risk Plan insured by Zurich, coverage for commercial renovations must be purchased under a single project /structure policy form. The reporting form and deposit premium policies are not available for renovations.

In addition to the renovation, Zurich’s commercial remodeling policy can include or exclude coverage for the existing structure. Insuring only the renovation requires a valuation based on the replacement cost value, or anything new going into the structure.

If existing structure coverage is needed, the renovation limit must be at least 20% of the existing structure value. Additionally, the existing structure valuation is based on actual cash value, meaning we can only insure the cash value of the structure.

Because our remodeling policies have an ongoing construction activity clause, policyholders will no longer have coverage for major perils (i.e., vandalism, theft and attempted theft, water damage, building glass damage and sprinkler leakage) or will pay a 15% penalty for other covered causes of loss when no “construction activity” has been performed within 60 consecutive days before the loss or damage occurs. Construction activity is defined as repair, replacement or installation, including painting.

#5: What happens if the project is not complete by the policy expiration date?

Due to the unpredictable nature of renovations, builders risk remodeling policies can be written in six, nine or 12-month increments. The 12-month policy term for remodeling policies with existing structure included and valued under $50,000 is not available. The policy can be reviewed for extension by the underwriter.

Extensions must be submitted before the policy expiration date, or it will be considered a rewrite. When requesting a remodeling extension, the policy term can be for less than six months.

With these insights, you’re headed for success! To learn more about commercial builders risk, check out our Learning Tracks

This is intended as a general description of certain types of insurance and services available to qualified customers. Your policy is the contract that specifically and fully describes your coverage. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.

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