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What is Builder’s Risk Insurance?  

Builder’s risk insurance is a must-have policy for anyone involved in the construction industry. This includes not only construction companies, architects, contractors, and subcontractors but also investors and property owners who are hiring a company to construct a building on a vacant lot. So what is builder’s risk insurance?

What is Builder’s Risk Insurance?  

This form of coverage is typically purchased by a construction company but can also be purchased by the property owner. It expires once the work is completed, after which the property owner should take out the appropriate form of insurance to cover the building in question.

What is Covered by a Business Risk Insurance Policy?

A business risk insurance policy is designed to cover damage to the building during the construction process. Such policies typically cover fire, lightning, hail, explosions, theft, and vandalism. They can also cover natural disasters such as hurricanes, flooding, earthquakes, or tornados; however, these forms of coverage may or may not be listed on the policy. Not all policyholders need these forms of coverage, but they should be seriously considered if a project is being built in an area where one or more of these disasters are commonplace.

Furthermore, a builder’s risk policy can cover the removal of damaged or destroyed business materials, supplies, and equipment in the event of a natural disaster or crime. It can also cover the removal of pollutants such as wastewater from concrete washout operations, slurry, contaminated soil, hazardous waste, green waste, etc. if a disaster causes these to leak or spill on the site or the surrounding areas.

Additional Coverages

A builder’s risk insurance policy also covers construction equipment, supplies, and materials on the site as well as equipment materials in transit to and from the site. It does not typically cover construction forms, temporary structures, and scaffolds, but a policyholder can have these forms of coverage added to the builder’s risk policy.

Additionally, builder’s risk insurance provides compensation if nearby buildings are damaged due to a natural disaster or crime at the construction site. If, for instance, a hurricane causes a partially-completed building or scaffolding to fall on a nearby house or building, the builder’s risk insurance policy will provide compensation for the repair of the damaged nearby buildings. It also provides coverage to repair damage to nearby buildings if these are damaged by a subcontractor’s faulty work; however, the policy will not cover faulty work to the building under construction.

What Is Not Covered by Builder’s Risk Insurance?

Builder’s risk is a specialized type of property insurance. As such, it will never cover injury incurred on the worksite. A construction company must have liability coverage to ensure workers injured on the job can receive needed medical care and treatment. It is also not a substitute for commercial vehicle insurance. It covers equipment transported to and from the site but will not cover costs incurred if a company driver or subcontractor is involved in a traffic accident.

Furthermore, builder’s risk insurance doesn’t cover the usual wear and tear of construction tools and equipment, employee theft, mechanical breakdowns, planning mistakes, poor workmanship or damage caused by poor workmanship, or the use of the wrong construction materials. Policies also don’t cover war or terrorist attacks.

How to Choose the Right Builder’s Risk Policy

There are many factors that should be taken into account when purchasing a builder’s risk policy. First, the buyer will want to consider which forms of coverage are needed for the policy. If the policy is being purchased by the property owner, they may want to consult the construction company to ensure the policy provides the right form of coverage. As builder’s risk insurance is a requirement in some areas, it’s wise to check city, county, or state regulations to ensure the coverage is legally adequate. Lenders financing a construction project may also have requirements that will need to be met when taking out a policy.

Read policy terms and conditions carefully to ensure there are no gaps in coverage. If some aspects of the project aren’t covered, one may need to purchase extra coverage or choose another policy with comprehensive coverage. Ideally, the policy should cover the cost of the entire construction project.

It’s also important to pay close attention to when the policy starts and when it will expire. Some policies start as soon as the policy is purchased; others allow a buyer to set a starting date in accordance with when the work on the site actually starts. A policy may be set to expire on a certain day, when the work is completed, or when the owner or tenants move into the buildings.

Furthermore, it’s wise to choose an insurance company with care. Builder’s risk insurance is a specialized policy and one will want to work with a firm that understands the needs of property investors and the construction industry. An established Los Angeles insurance agency such as GMIS will be prepared to offer not only a customized builder’s risk policy but also all the other forms of coverage needed to ensure a project is fully covered before, during, and after construction. With the right insurance coverage, a policyholder can rest assured that they will receive compensation quickly and easily should one or more unfortunate events occur during the construction project.