Builder’s risk insurance is a property only insurance policy that is designed to cover property in the course of construction. Buildings are subject to many different risks while under construction. They may catch fire, be damaged by high winds, or fall victim to other insured loss elements; therefore, coverage is usually written on an “all risk” basis. A principle of common law is that any new construction or other improvement to land becomes property of the owner of the land – the title holder – once there has been an “improvement” to the owner’s site. Builder’s risk insurance indemnifies against some of these losses.
Forms are not standardized; however, most builders risk policies are written on inland marine form. Coverage is afforded for property at the construction site, property at off-site storage locations and in transit. Builder’s risk insurance can be written on either a completed value or a reporting form basis and the limit of insurance is the estimated completed value of the project.
Some carriers can cover the soft costs of the project. Soft costs are items such as architectural, engineering, financing, insurance coverage and legal fees. You will need to work with your agent to see if the carrier you choose can include it in your coverage. Be aware that this might increase the cost of your builder’s risk policy.
Coverage is often purchased by a custom builder or general contractor but 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. 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. However, the General Contractor and/or Sub-Contractors also may have an insurable interest in materials and construction not yet paid for and therefore should be added as “additional insured” on the Builders Risk policy.
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