How Does Builder's Risk Insurance Work?

What Is It?

Builder's risk insurance provides coverage for the owner of any new property that is under construction. Covered losses include those from fire, vandalism, lightning, wind and similar forces that occur during the construction period. Typically, this type of coverage is purchased by the owner of the property being built; however, sometimes the contractor or builder may be required to carry this coverage as part of the initial contract.

What Builder's Risk Insurance Does Not Cover

Builder's risk insurance does not cover earthquake, flood, acts of war or intentional or criminal acts of the owner. Buildings that are already completed but are undergoing remodeling are typically covered under an existing property or home owner's insurance policy.

This coverage is only in effect during the construction process. It does not cover losses that occur before construction begins, or after it is completed. It also does not cover the tools and equipment of contractors and builders.

Why is Builder's Risk Insurance Necessary?

In addition to providing protection for the construction materials and unfinished structure, lending institutions normally require that this type of coverage be purchased before they will approve financing.

How Does One Get Builder's Risk Insurance?

The first step in obtaining a builder's risk policy is to consult with an experienced insurance agent who regularly handles such specialized coverage.

You will need to know several things before you can get the appropriate amount of coverage:

1. Current project cost estimates
2. Detailed project information, including blueprints, contractor/builder information, and a projected schedule with estimated completion date
3. Information relating to safety features, including what type of security and protections are in place on the work site to prevent accidents and theft

Additional Coverage Under A Builder's Risk Policy

There are other specialized coverages that can be added to the builders risk policy for additional premium. These coverages include:

1. Soft Costs (financial, legal, and marketing costs not directly related to the construction)
2. Delay of opening/loss of Income (for newly constructed businesses)
3. Earthquake and flood coverage

These are types of coverages that the insured will want to discuss with the insurance agent to determine whether they are necessary, and if so, what limits need to be put in place.

Resources

• Builders Risk Insurance: What Is It and Who Needs It?