For the owner of any new property, builder’s risk insurance coverage is a necessity during the construction phase. Builder’s risk insurance provides coverage in the event of forces of nature, including lightning and wind, hail, explosion, as well as criminal vandalism and fire.
These are considered covered losses during the construction phase of a building project and protect the owner of the property under construction. Sometimes, builders risk insurance will also protect the builders or contractors, but check with your insurer to ensure that they fall under the umbrella of coverage. If not, they’ll have to purchase their own policy to be part of an initial building contract.
Builder’s Risk insurance policies are typically written in periods of three-months, six-months, or one year. If the project is not finished by the end of the initial policy’s term, it can usually be extended, but typically only one time.
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What Builder’s Risk Insurance Does Not Cover
Builder’s risk insurance does not protect against intentional criminal acts by the owner or contractor, earthquakes, floods or any acts of war. Completed buildings that have finished the construction phase but are in the process of being remodeled are usually covered under a home owner’s insurance policy or additional existing property policy.
When Builder’s Risk Insurance Is In Effect
Builder’s Risk Insurance is only valid during the construction period of a building and does not cover any losses that happen before or after construction is completed. Equipment and tools being used by the builders and contractors are not covered under the policy.
Why You Need Builder’s Risk Insurance
In order to get financing approved for building construction, most lending organizations will require that builders risk insurance be obtained. This is to provide protection for the unfinished building an all construction materials.
Obtaining Builder’s Risk Insurance
You will need to seek advice from a reliable insurance agent or company who consistently deals with special coverage such as builder’s risk insurance policies.
What you need to know before you can get the appropriate amount of coverage:
- Present construction project cost estimates
- Complete, comprehensive building project information (this includes all blueprints/plans, contractor/builder information, and a projected schedule with approximate conclusion date)
- Any applicable information about safety features (what security, safety and protections will be used on the work site during construction to prevent accidents and/or theft)
Additional Coverage Under A Builder’s Risk Policy
There are several other specialized coverages that can be incorporated to a builders risk insurance policy for an extra premium cost.
These coverages include:
- Soft Costs (includes legal, financial and advertising costs that are not related to the building’s construction)
- Delay of opening/loss of Income (this is strictly for newly constructed businesses)
- Floor and earthquake coverage
- Wind (may be limited in coastal areas)
- Criminal Vandalism
Exclusions and Limitations
Make sure you have carefully read your builder’s risk insurance policy to be well-versed with its limitations and exclusions. Some limited coverage may be available to owner in the occurrence of a building or construction collapse.
Standard exclusions include:
- Employee theft or criminal vandalism
- Weather damage (due to construction being out in the elements)
- Government action
- Water damage
- Penalty of contract
- Parting of contractor and owner (voluntary)
- Mechanical failure or breakdown of building equipment
- There is no coverage available for any damage as a result of malfunctioning design, erroneous planning, workmanship or builder’s materials.
In some areas, flood and earthquake coverage may be bought for an extra premium.
Builder’s Risk Insurance Extensions
- Property in transit
This is a coverage extension that protects your property from loss while materials are in transit to the construction site.
Coverage is extended to cover scaffolding, structures that are temporary, construction forms, but only while they are at a site or location that you have reported to your insurer.
- Property in temporary storage
Coverage is extended to property that will be installed or used in the secured construction location and relating to the insured business or company.
- Fire department service charge
If the fire department is called to protect or save insured property or construction site from a covered cause of loss.
- Debris removal
A builder’s risk insurance policy will cover your costs of removing debris of insured property. This debris must be a result from a loss that is covered under the builder’s risk insurance.
- Sewer and Drain Backup
Any water damage from the back-up of drains and sewers is typically covered by builder’s risk insurance.
- Valuable papers
This includes blueprints, construction plans, etc.
What Else You Need To Know About Builder’s Risk Insurance
- Builder’s risk insurance does not, and will never, cover the property or construction of others.
- All sub-contractors are required to have their own insurance policies.
- There is no absolutely no coverage for building equipment or tools.
- There is no coverage for liability.
- Builders risk insurance does not cover accidents in the job or construction site.
- The policy’s coverage concludes when the building is finished, or occupied of the policy’s annual premium is fully earned.
When searching for builder’s risk insurance, make sure you choose a reliable insurance agent or company who deals with special coverage such as builder’s risk insurance policies.