Builders risk insurance is a policy that covers the completion of a building project from start to finish. While on the job, serious setbacks such as having a fire break out or theft of materials could alter or destroy the project's timetable, which could cost money. This insurance provides a safety net if any of those events should occur. Whether your project is commercial or residential, builders risk insurance is protection worth investing in.
The Facts
Builders risk insurance is a form of property insurance that covers property owners and builders for projects under construction. It is an "all risk coverage," meaning that it protects you from events such as vandalism, accidental losses and damages to the property. Because of the enormous risk of some jobs, many lenders require that this coverage be purchased before they will approve a loan for the project. Insurance companies may deny coverage if the project is done by someone who has two years or less of experience in commercial construction.
Benefits
Having this coverage gives the policy owner the peace of mind knowing that the project and his interests will be protected. You can add on optional coverage such as soft costs, which are expenses that are not directly related to the building phase but are affected by it. Financial costs, additional interest expenses, leasing and marketing expenses, legal and accounting expenses, and miscellaneous carrying costs are examples of soft costs expenses. Another added benefit is that the coverage amount increases as the value of the project rises as a result of its progress toward completion.
What's Covered
Under a builders risk insurance policy, a number of things are covered. The coverage is extended to the building supplies and materials and the property including the buildings or structures on the site. The materials are covered while they are in transit or at a temporary location. If the project is a sizable venture, you could pursue additional coverage in case the earth should move as a result of digging. Optional flood and earthquake coverage is also available. Some companies offer error and omissions coverage.
Considerations
This insurance works like every other insurance plan. Its main objective is to make someone or something whole again. The insurance company considers several factors including the risk of the project, the items to be covered and the coverage amount applied for prior to issuing a premium offer. The premium amount presented is the insurance company's determination after reviewing the submitted information. The insured is then responsible to make the premium payments consistently to maintain coverage.
Warning
Builders risk insurance does not cover losses before the start of a construction phase or after the completion of the project. This insurance is strictly in force during the construction only and the protection ceases once the job is finished. This coverage does not extend to the contractor's tools and equipment, which should be insured separately. In some states, it is required by law to have this insurance before you can start construction.
