If you’re the owner of a building that is currently being constructed, you might be a little confused or unsure about how exactly insurance works for that situation. Though the building is currently in pieces at a construction site, it still represents a lot of money. There are all the materials, for one, and then there’s the labor of the contractors to consider, too. If anything were to happen to the construction site or the building, you’d be facing a pretty significant loss. But that’s why builder’s risk insurance exists. What’s builder’s risk insurance? We’re glad you asked because we’re going to explain.
What is builder’s risk insurance?
Builder’s risk insurance covers a building that is in the “construction phase.” Like we said, even if the structure isn’t coherent or really building-shaped yet, it still really expensive. However, builder’s risk covers the partially built building.
Builder’s risk can also cover materials that are at the job site waiting to be installed. It can also provide coverage for materials that are en route to the job site as they’re being transported. (Building materials are also expensive.) But you have to make sure your policy will cover these things – we can’t stress enough the importance of reading the policy carefully and asking many questions of your insurance agent. You may have to add these coverages into your policy to ensure that the building materials at the job site and your property in transit are covered.
In the case of new buildings, the person with the builder’s risk insurance policy (the policyholder) will usually be the building owner.
What does builder’s risk insurance cover?
Well, it depends on the policy. You have to make sure that you understand exactly what’s covered and what is not. There are many risks that your not-quite-building-yet faces as it’s being put together, and you need to make sure that your builder’s risk policy covers all of the possible disasters that it could face. You don’t want to be in a situation where something you thought was covered actually isn’t. Talk about a nasty surprise.
Anyways, the following are typically covered by builder’s risk insurance policies:
- Fire
- Wind (Although if you’re in a coastal area wind coverage might be more limited)
- Lightning
- Hail
- Explosion (Hey, it could happen)
- Theft
- Vandalism (Construction sites are like magnets for troublemakers)
- Vehicles or aircrafts
What does builder’s risk NOT cover?
Now comes the other side of the coin – what is not usually covered by builder’s risk insurance. There are some losses that are excluded from most policies – which means that your insurance will not pay to cover the loss if one of those things happens.
Losses that are usually excluded from builder’s risk policies include:
- Earthquakes
- Water damage
- Weather damage
- Theft by employees
- Government action
- Mechanical breakdown
- War
- Contract penalty
- Voluntary parting
(If you’re super concerned about earthquakes and floods, you may be able to purchase coverage for these losses. Talk to your agent.)
Keep in mind that builder’s risk will probably not cover losses or claims arising from faulty design or work. You might be able to cover that risk with a professional liability policy. Another thing to keep in mind is that builder’s risk will most likely not cover any accidents at the job site.
Coverage extensions.
You may be able to add to your builder’s risk insurance with extensions. Some common extensions that can be tacked on to a builder’s risk policy include coverage for:
- Property while it’s in transit
- Scaffolding as long as it’s at the site you’ve specified
- Debris removal if there’s a loss
- The service charge from the fire department if there’s a loss
- Sewer backup
- Valuable papers
Builder’s risk can also cover “soft costs” if your project is delayed. Soft costs can include loss of income, loss of rent, interest on loans, and extra expense. If you want your soft costs to be covered, you need to make sure that it’s included in your builder’s risk policy – don’t make any assumptions that it’s automatically going to be covered.
Make sure you know when coverage ends.
Another important consideration for builder’s risk insurance is when the coverage ends. You have to make sure that you read the policy very carefully to see what will trigger the end of your builder’s risk coverage and if anything will trigger the coverage to end early. (And again, don’t be shy about asking questions.) It can be tricky to know when a certain project will be completed, so you need to make sure that you’re covered.
Builder’s risk insurance can protect your building while it’s still being constructed. Sure, it might look like a vaguely skeletal hodgepodge of building materials, but that skeleton still represents a lot of money.
We can help you protect yourself financially while your building is being put together with the builder’s risk insurance that’s right for you. Get in touch with our team by filling out our online quote form or giving us a call today. We’d be happy to help you get quotes for business insurance.
Sources:
https://www.thebalancesmb.com/understanding-builders-risk-insurance-844798