Buildings are traditionally covered by home or property insurance, but what if the building process isn’t yet complete?
That’s where contractor builder’s risk insurance comes in!
Exactly what is builder’s risk insurance? In short, it can protect a building that is in the process of being built, but just like any insurance policy, there’s a bit more to it than that.
Here’s what you need to know about builder’s risk insurance.
Who Needs Coverage
A builder’s risk policy is specially designed for contractors and subcontractors, but other parties can benefit from the policy. You may also want to make sure the property owner, lender, and architects are properly covered under the policy to ensure the project is completed smoothly.
What Contractor Builder’s Risk Covers, and What it Doesn’t
Builder’s risk insurance is also sometimes referred to as course of construction insurance. When a contractor is constructing a building before it is complete, this type of insurance can protect against property damage before a regular residential or commercial policy kicks in. It can protect against things like:
- Other severe weather events
In general, it covers things like the materials and supplies that are being used to construct the building, like two-by-fours and drywall, as well as equipment, even if it is in transit or it is parked at another location.
When asking, “What is builder’s risk insurance?” you should know what it covers, but you should also know what it won’t cover. Some common exclusions include:
- Employee theft
- Mechanical breakdown
- Wear and tear
- Acts of terrorism and war
- Damage due to faulty design
It’s also likely that your policy will not cover the cost of correcting faulty work from a subcontractor, although it may cover damage that is a direct result of poor construction.
Make Sure You Understand the Details in Your Contractor Builder’s Risk Policy
Whether you’re asking yourself, “What is builder’s risk insurance?” or you’re ready to sign up, you should always know every detail of your policy.
Start by considering all of your exposures. This will help you determine the details that should be included in your specific policy. Policy extensions you may want to pay for, depending on your needs, include:
- Scaffolding and temporary structures
- Construction forms
- Debris removal and disposal after a loss
- Pollutant cleanup
Your policy can include coverage for soft expenses, like the building delays that are common after property damage, as well as specific types of weather events that may not be included in a standard policy, like hurricanes, flooding, or an earthquake.
Know When Coverage Starts and Ends
Mistakenly assuming when your policy begins or ends can be disastrous. Although most policies start when contracts are signed, some contain provisions that may restrict when coverage begins.
In addition, you don’t want to assume your policy is still active when your project goes on longer than expected. Make sure you know if your policy ends on a certain date if it expires or when the building is occupied.
Because there are so many customization options, this article only scratches the surface of builder’s risk insurance. If you still have questions about what builder’s risk insurance is, or you want to make sure your policy covers everything you need without paying for coverage you don’t, it’s a good idea to talk to an insurance broker instead of trying to choose and customize a policy on your own. They can help you find the right carrier, and they can create a custom policy on your behalf, saving you time and money.