Most small business owners know that property insurance coverage is important especially during a major disaster in terms of real estate. However, what if the damaged real estate in question is under construction? Builders purchase a policy known as a builder’s risk policy to cover the project and its components during the process.
Why Do I Need This Type of Insurance?
Builder’s risk insurance is typically purchased by general contractors and those with insurable interest or money to lose on fixtures, equipment or materials used during construction projects. The policy pays out should the project sustain any physical damage or theft. Thanks to a law precedent, new constructions, improvements and renovations only become a landowner’s property once the land itself has been improve by the structure’s presence. Until that time, the general contractor can be in trouble for the damages due to fire, theft, wind or vandalism.
Builders Risk Insurance protects these business owners from the high costs of these type of losses. Because tornado damage is a covered loss, a contracting business may receive some type of reimbursement for those damaged buildings still under construction. However, this isn’t the cause with all types of disasters.
Because there are risks associated with construction site, it’s not rare for contractors to purchase this type of insurance in order to protect their investments. Always make sure that you double check all contracts and local laws to see if you need proof of insurance.
How Builders Insurance Works
If you have purchased insurance before, you may be curious about whether Builder’s Risk Insurance is another policy that you must keep for the lifetime of your business. It’s unlikely you will need this protection 100% of the time. This is a temporary insurance policy that is issued on a project-by-project basis and lasts as long as the construction period of that project. Insurance providers will recommend that you set up your policy so that you start before the materials arrive and end it when the structure is ready to use.
In cases where a property is developed and sells or closes before the policy’s expiration date, then the policy is void once the sale or closing completes.
Things to Keep in Mind When Deciding on an Insurance Policy
Consider location when choosing a policy. Beach zones are not cover under any typical Builder’s Risk policies. Also consider gaps in coverage such as things as cribbing, scaffolding and temporary structures. Remember every contract is different and might demand different requirements for your policy. One thing to pay close attention is the use of building and structure. A building is an occupied structure, however not all structures are buildings. If your contract requires coverage for a structure you are constructing, but the policy you purchased covers buildings, you may experience a coverage gap when filing a claim.
While renovation or addition projects may be covered under construction on one’s property insurance. Each policy does vary, so it’s important to ensure your existing policy covering construction on any of your vacant sites to protect your investment.