Those in the construction business are aware of the risks involved in building or remodeling a structure. Lightning could strike newly installed electric utilities. Wind could blow materials away or someone could vandalize the property. Owners and contractors need to be protected from numerous events that could result in property damage or loss. Builders Risk Insurance is a type of property insurance specifically for buildings under construction. However, policies vary depending on insurance companies and the construction contract between the owner and contractor. Before undertaking a construction project, owners and contractors should consider the following five questions.
Who is responsible? Builders Risk Insurance is usually purchased by the owner of the building. However, the general contractor will sometimes make the purchase if required as part of the contract. Simply put, the person or company with insurable interests in the property should make the insurance purchase. For example, if a person buys a house intending to renovate it and rent it, he or she has the insurable interest. In some cases, however, the contractor has the insurable interest. For instance, a contractor developing homes in a new sub-division pays for materials, permits, labor costs and other expenses sometimes before a buyer is even secured. He or she would want to make sure his or her investment is protected. Also note that some city, county or state building codes require proof of insurance before the project begins.
How should an insurance company be selected? A good place to start is the owner's current insurance company. Companies usually offer discounted rates for clients who have preexisting homeowner's, renter's or automobile insurance polices. If purchasing a fresh policy, many insurance companies allow policyholders to easily convert to a homeowner's policy at the end of the construction project. Shop around and compare prices online. Ask specific questions about coverage and the process for filing a claim. Typically, owners need to supply the contractor's name, business address, business license number, and the age and size of the building under construction.
How much should be purchased? Remember damages are only paid up to the coverage limit. So, if a project experiences a total loss, as in the case of a fire, an owner would want to make sure he or she is protected. The policy should cover the structure, all the materials and labor costs, but not include the land value. Your construction budget is a good gauge for determining how much is needed. An owner would also need an accurate estimate of the length of the project from the contractor. Most policies are available in terms of three, six or 12 months and are usually only allowed to be extended once.
What is covered? Policies can vary, but in general policies cover damage from fire, wind, theft, lightning, hail and vandalism. Time lost is usually covered as well. For example, lost labor costs are accrued when materials are stolen and there is a waiting time for more to be delivered. Owners can also ask for certain additions to their policies. For instance, an extension may be purchased to protect your materials while they are in transit to the site or in temporary storage.
What is not covered? First and foremost, owners and contractors should be aware that the policy could be deemed invalid if damages occur as a result of faulty design, workmanship or materials. In addition, the property is not protected from employee theft, government action, contract penalties or mechanical breakdown. Earthquake and flood damage is usually not covered, but can be added to policies. It is also important to note polices do not include liability coverage. Accidents on the job site are not covered.
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Leading insurance expert Carolyne Roehm has written extensively about the insurance industry. She is currently a guest blogger for numerous insurance websites. Her most recent postings can be found at http://www.CanonInsurance.com.
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