Florida General Contractor Practice Exam

Premiums for builder's risk insurance are primarily based on which factor?

1. Type of construction

2. Contractor's experience

3. Total construction cost

4. Location of the project

The correct answer is: Total construction cost

Builder's risk insurance is a specialized type of property insurance that provides coverage for buildings under construction against various risks, such as fire, theft, and weather-related damages. The premiums for this insurance are primarily determined by the total construction cost because this figure reflects the overall value of the project that needs to be insured. When calculating insurance premiums, insurers assess the potential exposure to risk associated with covering the full construction amount. Higher total construction costs generally lead to higher premiums, as there is more monetary value at stake in the event of a loss. This means that, as the scope and complexity of the project increase—ultimately raising the total cost of construction—the premiums for builder's risk insurance will correspondingly increase to account for the heightened risk. While other factors like the type of construction, the contractor's experience, and the location of the project can influence the overall risk profile, the total construction cost remains the primary basis upon which premiums are calculated.