Builder's Risk Insurance FAQ
Builder's risk insurance, also known as course of construction insurance, is a temporary insurance policy you buy to cover damages or losses to a construction project. If you've never built a building before, you may have questions about how this type of insurance works and what it covers. Once you have answers to these questions, you can shop for a policy that meets your needs.
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What does builder's risk insurance cover?
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Builder's risk insurance covers elements such as vandalism, theft and wind. It also covers materials and tools on the construction site. Some natural disasters such as floods and earthquakes are not covered in general, although some companies allow you to purchase coverage for these elements at additional cost. Damage done by the owner intentionally is not covered, nor is liability.
How long does my policy last?
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In general, a policy lasts a minimum of 12 months. However, because it is not always possible to foresee delays, you may extend a builder's risk insurance policy via renewal so that coverage lasts until the completion of the construction project.
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Who should buy builder's risk insurance?
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Generally, it is the responsibility of the building owner to buy builder's risk insurance. However, you may opt to have your contractor purchase the insurance as a stipulation of his contract with you. In some rare cases, banks take on the responsibility, as they sometimes are deeply invested financially in a construction project.
Why is builder's risk insurance necessary--can't I just buy homeowner's insurance?
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Construction projects are not covered under homeowner's insurance unless the project is attached to an existing structure. Builder's risk insurance sometimes is the only way to protect your investment until you the project is completed, when you can buy a homeowner's policy to cover the finished structure.
How much coverage should be in my policy?
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You should use the budget from your construction project proposal to get a starting estimate on how much coverage you need, since the value of buildings, tools and materials can vary greatly. The policy should cover 100 percent of your costs--that is, it must be comprehensive.
When should I buy a builder's risk insurance policy?
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Although it is possible to buy builder's risk insurance after work on a construction project has begun, you should not do this because it leaves a window of time when all of your resources are at risk. Additionally, insurance companies may be less likely to give you a policy the closer you are to finishing your project, as shown by the BuildersRisk.net website. You will lose the discounts usually afforded prior to construction if you wait, since these discounts account for the fact that property value is lower on a yet-to-be-constructed home. For these reasons, you should purchase your policy before any construction occurs.
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References
- Photo Credit Hard working construction worker at a construction scene. image by Andy Dean from Fotolia.com
