What is Builders Risk Insurance?
Builder’s Risk Insurance, also known in some areas as Course of Construction, is a unique kind of property insurance. It's a form of insurance, which covers a building where the building or insured area is presently being constructed. It can cover just the structure, or also the materials on site waiting to be installed or transported to the job site and is an insurance that most owners will ask every contractor to carry.
The builder's risk insurance policy will pay for damages up to the coverage limit.The limit must accurately reflect the total completed value of the structure (all materials and labor costs, excluding land value). The construction budget is the best source for determining the appropriate limit of insurance. Builder’s Risk insurance policies can often be written in terms of three months, six months, or 12 months. If the project is not completed by the end of the initial policy term, it can often be extended, but usually only one time.
Typical Builders Risk Insurance Coverages
Builder's risk covers perils such as fire, wind, theft and vandalism and many more. It typically does not cover perils such as earthquake, flood or wind in beach zones unless the policy has been specifically endorsed to do so. However, earthquake riders can be very economical, depending on where your project is located and should be considered. These policies also do not cover accidents and injuries at the workplace. and is intended to terminate when the work has been completed and the property is ready for use or occupancy. If you are going to properly setup your policy, coverage should be effective prior to when the materials are delivered to the job site. Coverage ends upon the earlier of closing of the sale, occupancy or the policy expiration date. After builder risk coverage expires, due to sale or occupancy, the new owner should take out permanent property insurance on the building such as a home owner's policy or a commercial property policy.
Who buys builder's risk insurance?
Coverage is often purchased by the custom builder or general contractor and may also be purchased by the property owner. Builder's risk coverage may be necessary to show proof of insurance to comply with local city, county, and state building codes and is often required as a condition to many contracts. However, many architects believe that it is the property owner who should have the builder's risk policy, because they have already paid for the improvements to their land, and if the builder receives the funds directly from a claim, theoretically, he/she could abscond with that benefit. It is far safer for the property owner to obtain the builder's risk policy, because they already own the building, even while it is under construction. If something happens to the under-construction project, then they should be the beneficiary and control how it is spent. Yes, the builder ends up receiving the funds in the end, to rebuild damage, but this method gives the control of the insurance benefit to the owner.
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