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Builders risk insurance protects property owners against damage to a business while it is under construction. The insurance typically covers the partially constructed building, the materials, the fixtures and any equipment used in construction of the building. This type of insurance will also cover building renovations. If the building suffers physical loss or damage, the insurance will cover and reimburse for the damaged property.
What Risks and Coverage are Associated with a Building in Construction?
Buildings under construction may catch fire, suffer physical loss due to theft or may be damaged in high winds. Insurance will not cover damage caused by the contractor because of negligence. Any damage due to acts of nature or defective items will be covered.
Other risks may vandalism, wind damage or lightning. This type of coverage typically does not cover earthquakes, acts of war, flood or other intentional acts by the owner or contractors. When the property is fully complete, coverage ceases, and the property owner must obtain a different type of insurance.
Why is the Insurance Necessary?
Loss of materials can be a significant cost if contractors cannot replace the structure he or she is building. A significant delay in project completion could occur if the entire structure is damaged at any stage of the building process. Proof of insurance may also be required in some instances to remain in compliance with local, county and state building codes.
Are There Any Instances Where Builder's Insurance is Not Needed?
If the general contractor is renovating an existing building, the property owner's property insurance may cover the home and the addition while under construction. Each policy varies. Contractors and home owners will have to verify the coverage before beginning renovations. Otherwise, the policy may not cover any aspect of the home. If an unforeseen event occurs, property owners could lose their entire investment.
What Should Be On the Builder's Insurance Checklist?
1. Verify What is Covered. Determine if the building materials and supplies are covered on the job site. Many insurance policies will cover the materials in storage and in transit. Verify the materials are covered whether the materials are on-site or not.
2. Determine Which Structures are Covered. Verify which structures such as foundations, temporary structures and excavations are covered.
3. Determine What Type of Equipment is Covered. Verify the policy covers scaffolding, fences or equipment. The equipment should be covered on-site and in-transit. Leased equipment should also be covered to avoid costly bills associated with replacement in the event of damage.
4.Verify Coverage of All Weather-Related Damage and Theft. Verify the policy covers floods, fire, earthquakes and theft. Water and sewage damage should also be covered.
5. Verify Business Interruption Insurance is Included. Determine if faulty workmanship or design error is covered. Any changes in laws will also affect a builder's risk policy. For an additional fee, contractors may want to cover any losses associated with interruption due to an unforeseen event.
6. Include and Name All Relevant Parties on the Policy. Review the policy to ensure all the sub contractors, building owners, equipment owners and mortgage companies are covered.
What to Ask a Insurance Broker
Find an insurance broker who is an expert in issuing builder's risk policies. Inform the broker of the cost of the entire project. This will determine how much insurance is required to adequately cover a structure. Provide the broker with a project description to receive an accurate report. Insurance brokers should know about all phases of the project to adequately provide a quote.
The insurance broker should also receive a copy of the contract to ensure every aspect of the building is covered. An attorney may be used to address any obligations that are beyond the scope of the insurance. Insurance brokers should know about all the safety features in the building such as sprinklers, fences and guardrails. This may lower the cost of the insurance or make the building less of a risk to insure.
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