A property insurance policy protects a building and the contents against losses that can result from damaging events, such as fire, flood or natural disasters. If the building were to be destroyed by one of the named perils, the property owners will be able to rebuild and replace the applicable contents. When a building is under construction, the owners will need property insurance, but they will specifically need to purchase a builders risk policy.
What the Policy Covers
This type of policy will cover the building as it is being constructed. After it has been built, the policy usually expires. The reason is that buildings under construction have specific risks that buildings that are currently standing do not have. Some of these risks are because the building may:
- Catch fire
- Be destroyed by vandals
- Be hit by lightning
- Sustain damage from the winds or hail
- Be subject to theft
What Is Excluded?
These policies will often exclude certain types of risks, and they are floods, earthquakes, war or intentional destruction of the property by the property owner. A building that has not been constructed properly and sustains damage because of it will not be covered under this policy.
People Who Need to Purchase a Policy
The owner of a building has a definite interest in insuring the building to be constructed because this is the person or persons who will be mainly responsible for the materials involved in the building project.
Another person who will need to consider purchasing this policy is the contractor. Sometimes, contractors will be required by their local and state governments to prove that they have a policy in place before they will be able to begin work on the project. The reason the contractor needs to purchase a builders risk policy is that they have an interest in protecting their own materials that will be used to construct the building.
Materials to Be Covered
These policies cover the contractors' materials as they are being transported to the construction site. For example, if there is an accident on the way to the worksite and the materials sustain some damage and need to be replaced, the policy covers them. The policy also protects the materials after they have safely arrived at the site. These materials will need to be left at the construction area and are subject to being damaged in a number of ways.
The policy covers construction of a building, but it is not a requirement that the owners and contractors build an entire building from the ground up. This means that if people are adding a room onto an existing building, they can purchase this policy to cover just the addition. If they are improving an existing property in any way, this policy will cover the work being done, such as a remodeling job on a house.
The Limits of the Policy
As with other types of insurance policies, people who purchase this insurance policy will be able to set a limit on the amount of money they will receive in the event they need to file a claim. Unlike other policies, they will not be able to choose between the Actual Cash Value (ACV) and the Replacement Value (RV). Only the ACV applies in this case, but it is rare that there is much in the way of depreciation for new materials that are being used to construct property.
The Cost of the Policy
How much people will pay for their premiums will depend on a couple of factors. The cost will be decided based on the type of building to be constructed, and it will also be dependent upon where the builders are building the property. Typically, policy holders will be required to pay a deductible after they have filed a claim, and this tends to be $500.
The Length of the Policy
The length of the policy is flexible because people can insure their building projects in different terms. Typical time periods are for three-month policies, six-month policies or even year-long policies.
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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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