Since builders risk insurance coverage can vary from one insurer to another, when you inquire into the insurance rates you also need find out exactly what the policy will cover. Make sure the policy you purchase covers any damage or loss that may normally occur in or around the geographic area of your construction site.
Builders risk insurance is a temporary policy (a form of inland marine insurance). Policies typically cover hard costs, but some soft cost may be pre-negotiated into your policy. The duration of the policy lasts until the end of construction and only applies to the insured structure and the materials on site or in transit that are need to complete the structure.
In this article we shall try to to show the scope and present a clear picture of the builders risk coverage definition, so that you are aware of what should be covered by the builders risk insurance coverage you buy, what is usually excluded and which other property or result of construction you can extend the builders risk coverage to include.
What does Builders Risk Insurance Cover?
Builders risk insurance is similar to a commercial property policy, it incorporates “special form” coverage. This means that the policy will specifically list exclusions, or what is not covered.
What is Covered?
Basic perils are included in the coverage, these include:
- The elements:
- wind (this may be limited near the coast);
- lightning; and
- Theft and vandalism;
- Damage from vehicles and aircraft;
Standard exclusions include (you may be able to include some of these individually):
- Flood and other water damage;
- Weather damage to property in the open;
- Government action;
- Contract penalty;
- Voluntary parting;
- Mechanical breakdown; and
- Employee theft
Coverage is intended only for sudden and accidental events, not poor construction. Therefore an important part of the exclusions is damage caused by faulty:
- workmanship and
It is very important to read the exclusions clause carefully and in its entirety, to make sure you will be fully covered.
Coverage extensions can be purchased, from the insurer selling builders risk insurance, in certain situations. The most common extensions are:
- Debris Removal
The policy will pay your expenses to remove debris of insured property resulting from a loss that is covered under the form.
This only applies to service charges that apply when the fire department is called to save or protect the insured property against a covered cause of loss. The maximum amount is usually set.
Coverage can be extended to apply to scaffolding, construction forms and other temporary structures, but only while they are at the location of the insured property.
For rehab projects, expected profit may be included for coverage. This is allowed at a predetermined percentage of the purchase price of the shell.
This coverage extension provides a predetermined amount for property intended to be installed on the project while at a temporary location.
A coverage extension to protect your property from loss while being transported to the jobsite. The additional coverage is set to a maximum predetermined amount.
Water damage from the back-up of sewers and drains is covered for up to a maximum predetermined amount.
This will include papers needed in aiding the construction, such as site-plans, blueprint, etc.
Who is Covered?
The named insured of a builders risk insurance policy is the beneficiary. In most cases this will be the contractor or developer of the property. However, sometimes it may be the building owner or homeowner if they are responsible for insuring the property while under construction. A mortgagee or lien holder may be added as an additional insured.