Builders Risk Insurance Basics

When constructing a new building, builders risk insurance is an essential type of coverage that provides benefits for both the owner of the property and for the contractor. This type of insurance makes it possible to protect the structure while it is under construction. It provides benefits that don't come with regular homeowners or commercial property insurance. Here are the basics of what this type of coverage brings to the table.

How it Works

In most cases, the owner of the property buys this type of insurance coverage. In some big projects, the general contractor who is in charge of the construction will buy the policy. 

Who buys the policy will be covered in the written agreement between the owner of the property and the general contractor in the project at the beginning of the job. This way, it is crystal clear who is supposed to provide the insurance coverage for the project.

The purpose of this type of insurance is to protect the structure that is being built before it is a finalized building. Once the project has been completed, it can be covered by traditional homeowners or commercial property insurance. Until that point, a regular insurance policy will not provide any kind of coverage for it.

During the construction phase of a building, a lot of different things can go wrong which could lead to the destruction or damage of the structure. For example, a fire could start in the building, which could burn the entire thing down to the ground. A storm could come along, and the wind could tear down the structure as well. The open construction could even be subject to vandalism from people walking by. Any of these items could potentially cost the owner of the building a lot of money. Because of this, buying an insurance policy to cover against these risks is essential.

Negligence

Another possible source of damage for the property is negligence on the part of the contractor or by some of the subcontractors. When negligence occurs, this type of damage is not covered by a traditional builders policy. Instead, it is covered by the general liability insurance that the general contractor has to buy before beginning the job. On most new jobs, the owner of the property will check to make sure that the general contractor has insurance before he gets started. This way, the owner of the property will know that it is protected from all possible sources of damage.

If a subcontractor does something that damages the property, then the general contractor is responsible for the damage, since he hired the subcontractor originally. The subcontractor may need to file a claim on his liability policy if the damage is substantial. If the damage is relatively small, he may be able to simply fix the problem without having to use insurance coverage.

Riders

If a new building is not being constructed, but an addition to an existing building is being built, then another option may be available to the property owner. In some cases, the property owner can simply get a rider of coverage added onto his existing property insurance. For add-on construction, many insurance policies will cover this type of project, so that a new policy will not have to be issued. Since the add-on is technically part of the existing building that is already insured, it is much easier to use the same policy instead of getting involved with two different policies. When working with two different policies, the owner of the building can get into a confusing situation if the construction damages part of the existing structure of the building and a claim has to be filed. Having the entire project under one umbrella makes a lot more sense in most cases.

Before undertaking any building project, it is typically a good idea to purchase builders risk insurance. It helps protect everyone involved in the project from financial risk, and provides some peace of mind.


Article Source: Carolyne Roehm