Risks always exist at any point in time that people are constructing property that will eventually be where they will run their businesses. Because of this, people have builder's risk insurance to protect them against these many risks. This type of insurance falls under the property insurance genre, and it will compensate the policy holders after the insured properties have been damaged.
Who Can Be Covered under the Policy?
When loss occurs, many people can be affected by it. Even though these people are working on different portions of the building project, they can all be named on the same policy. Important people to be named on this type of insurance coverage are:
- The owners of the property
- The people who will construct the building
- The building's contractor
What Can Be Covered under the Policy?
When people make the decision to purchase this type of insurance, several of the physical parts of the construction process will be covered under the policy in case they are damaged. The building does not need to be in construction; it can be undergoing repairs or improvement. Of course, it will cover the building before it has been built, during the construction and sometimes, after.
During the construction, the materials will need to be transported to the construction site. They may be vulnerable to several kinds of loss while being stored at this location, so they will fall under the protection of the insurance coverage. Specifically, the building that is being created, the tools needed to construct the building and the materials used in the construction of the building will be covered.
When the Insurance Policy Pays
A builder's insurance policy pays after the property has been damaged by one of the several applicable named perils. Just some of these named perils are:
- If the building catches fire
- Vandals trespass on the land and destroy property
- Damaging winds
- Being struck by lightning
The Force Majeure
Insurance policies often mention the term, "Force Majeure." Sometimes, the policy will exclude them, but there are times when they will be included as covered perils. If the building owners experience loss when extreme acts of force or accidents occur, they will be covered under this type of coverage. Examples of a Force Majeure are wars, riots or acts of natures, such as hurricanes, floods and earthquakes.
The Insurance Coverage
As with other types of insurance coverage, the underwriter will determine how much insurance that the building project will qualify for if there is damage. In the case that the property does meet its demise due to what is allowed in the policy, the policy holders will receive the pre-determined amount. These policies are often very short-term policies, and they can be contracted for different periods of time for three months, half the year or the entire year. If either of these time periods is not sufficient, the policy holder may be able to increase them once.
The Insurance Coverage Options
When the policy holders are purchasing their coverage, they have the option of choosing the replacement value, actual cash value and also the extended replacement value.
- Replacement Value: The replacement value offers the policy holders the value of the material that was lost without considering the fact that the lost item had depreciated.
- Actual Cash Value: The actual cash value does subtract the depreciation cost from the amount given to the policy holders.
- Extended Replacement Value: Policy holders receive the replacement value without regard to depreciation plus any extra cost policy holders may need to pay if the price of the items increased.
This type of insurance tends to cover policy holders in very extensive circumstances, but these people can augment their coverage even further if they feel they need to do so. For example, just one extra covered piece of property can be the scaffolding used to help build the building. Policy holders are free to extend their coverage or keep it as bare as they would like.
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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