Builder's risk insurance is a type of coverage that is essential to protect against the risks that come with the construction process. When constructing a new building, this type of policy makes it possible to provide coverage for the structure before it is completed.
What it Covers
This type of insurance coverage typically provides several different types of coverage options. Each individual policy can cover different things, but many of the policies in the market cover the same basic perils. For example, a common builder's policy will cover damage from fire, wind, storms, vandalism, and theft. Some policies may also provide coverage for more broad types of damage such as earthquakes, hurricanes and wild fires. In some cases, these additional areas may need to be added on with a coverage rider.
Who is Responsible For the Insurance
During the process of constructing a new building, a few different parties may be responsible for purchasing builder's insurance. Most of the time, the owner of the building simply buys the policy since it is his property to protect. While the owner of the building often will buy the policy, sometimes the general contractor will need to buy it.
If the general contractor buys a policy, it is often to protect his own financial liability that comes with building a new structure. For example, the general contractor is in charge of the subcontractors that he hires. If one of the subcontractors were to damage the property in some way, the general contractor would be responsible. Because of this, the owner of the property may require the general contractor to purchase an insurance policy during the construction phase. When the project is big and requires bids from multiple contractors, the owner of the property may require that any bidders provide a builder's insurance policy before the bid will be considered.
Why Buy This Coverage?
A builder's insurance policy is basically a must when constructing a new building. Without this type of coverage, the owner of the property is taking on major financial risk. If the building were to be destroyed at some point in the construction before it was finalized, all of the money that was spent on the materials and labor would be lost. A traditional insurance policy would not go into effect until the building has been completed. This means that the owner of the property could potentially be out hundreds of thousands or millions of dollars with no possible recourse. He can't even use the property because it would be covered in debris. Because of this huge risk, it is very important to buy a builder's insurance policy before engaging in any construction.
Adding On
When it comes to adding on to an existing structure or building, a builder's insurance policy may not be completely necessary. Instead, the property owners homeowner's insurance may be able to provide coverage for the addition. If the property is a commercial building, the commercial building insurance may cover this type of addition. Before adding on, it is important to contact the insurance company and find out exactly what the existing policy covers in regards to this new construction.
If the existing policy does not cover the addition, then a builder's insurance policy may be purchased for the addition. The cost for this type of policy will likely be based on the number of square feet in the addition and what type of addition is being added.
What About Negligence?
When it comes to the risks that are associated with constructing a building, there is always a chance that a builder or contractor could be negligent. Typically, builder's insurance policies do not cover any kind of negligence that could occur. If a builder is negligent while working on a building and he damages the building in some way, he would have to pay for the damages, as the builder's insurance would not. In that case, the general contractor may turn to his liability insurance to make payment for the damages.
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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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