An asset is property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies. When you are building a home, you are building an asset.
Builders risk insurance is coverage that protects building materials, supplies, equipment, machinery, fixtures and appliances which are intended to become a permanent part of a covered “construction project” should those items sustain physical loss or damage from a covered cause.
As with most insurance providers and policies, not all coverages are the same. Each provider will have their own terms and conditions. Each project will have their own requirements. It is always important to understand any insurance policy you are purchasing before approving.
Protecting Your Assets with Insurance
We all want to protect our assets and we protect them with an insurance policy. Insurance is the practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium. Most people have an insurance policy in place to protect cars, homes, life, disability, health, and liability. When building a home, an asset is being created and needs to be protected during construction. The asset starts of small but as time goes and the project moves forward, the asset grows. When the developed lot or raw land is purchased, you gain an asset. When construction materials are procured, delivered and assembled, it becomes an asset. At the end of the project once all the work is completed, the asset is a home. The home is protected with a homeowner’s insurance policy. During the process of construction, the asset is to be protect with Builders Risk Insurance also known as Course of Construction Insurance. If the construction project is funded by the owner, a builder’s risk policy is needed as protection but not required. If the construction project is funded by a lending institution such as a bank, a builder’s risk policy will be required. The insured will be the company purchasing the policy and the construction project being. Additional insured will be the lending institution, the owner of the project, and any others having financial interest in the project.
What is Builders Risk Insurance?
Builders risk insurance is also known as course of construction insurance and is a specialized type of property insurance which indemnifies against damage to buildings while they are under construction. Builders risk insurance is coverage that protects an insurable interest in materials, fixtures and or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause. Covered Cause of Loss, means risk of direct physical “loss” to covered property from any external cause except those caused of “loss” which are excluded in the “exclusions” section or limited by other provisions. Coverage begins when you acquire an insurable interest in the covered property, but not before the effective date of the policy. Coverage ends when the owner or purchaser accepts the construction project, or when the contractual obligation in the construction project ceases, or when the construction project is abandon for any reason with no intention to complete it, or after the construction project is occupied in whole or part and has been put to its intended use, or the policy expires or is cancelled.
Who Pays for Builders Risk?
The person or company applying for a builders risk policy and seeking coverage is the one who pays for the policy. If a builder or contactor pays for the policy, the construction contract will identify if this cost is reimbursable. Typically, a builders risk policy is applied for and paid for by the hired builder and the customer reimburses the builder. There are several eligible groups such as homeowners, builders, trade contractors, developers, retail companies and school districts who can apply for a policy.
What is in a Builders Risk Coverage?
The policy will be put in the name of the purchasing party and they will be listed as “Insured.” They will be identified by name and current address. Property information with location and description will be included. This identifies the covered construction project with a physical address. A list of additional insured will be listed. This is a list of other entities who have additional interest such as property owner, construction client, and lending institution. The following list identifies what is in the policy.
- Coverage
- The amount of risk, liability or potential loss that is protected by insurance
- Covered Property
- Where Coverage Applies
- When Coverage Begins and Ends
- Property Not Covered
- Covered Caused of Loss
- Coverage Extensions
- Exclusions
- An item or risk specifically not covered by an insurance policy or other contract
- Governmental Actions
- Nuclear Hazard
- War and Military Action
- Earth Movement
- Water
- Building Ordinance
- Limits of Insurance
- The maximum amount of money an insurer will pay toward a covered claim
- The section defines the most that will be paid for all losses in any one occurrence or series of occurrences arising out of one event
- Deductible
- A specified amount of money that the insured must pay before an insurance company will pay a claim
- The insurance company will not pay for “loss” until the amount of the adjusted “loss” exceeds the applicable Deductible amount shown in the “Supplemental Declaration”
- Additional Conditions
- Any special conditions contained within, attached or appended to the insurance policy and which forms an integral part of the insurance policy
- Valuation – an estimation of something’s worth, especially one carried out by an appraiser
- Coinsurance – a type of insurance in which the insured pays a share of the payment made against a claim
- Impairment of Rights of Recovery – If any act or agreement of yours (before or after a “loss”) impairs your right to recover
- Coverage Territory – Outlines an area with boundaries in which the insurance policy can be used
- Definitions
- Words are defined that were used to explain Builders Risk Coverage
- Example: “”Loss” means accidental loss or damage