What Is A Builders Risk Policy, And What Does It Generally Cover?
All insurance, no matter what kind of it, functions as a kind of wager that's made with the insurance company. The insurer is assessing the risk of extending coverage to its client, and betting that misfortune won't then befall the insured, who is paying the premium that was agreed upon as a way of essentially betting that they they'll need the coverage after all. In the event that an accident occurs, the policy kicks in, and the client is protected from a major financial loss. Property insurance policies can take many different forms, some of which depend on the state that the building is currently in. A builders risk policy is unique in that it is typically applied to a piece of property that's currently undergoing construction.
Buildings that are currently undergoing varying degrees of construction are often a lot more vulnerable to damage that's caused by the forces of nature. While finished buildings have the infrastructure in place to keep out the elements, interior sections of buildings that aren't yet finished may be more at risk from fire, or even damage from heavy storms, including hail. Additionally, the equipment that's being used in the construction that's left at the site during off-hours is also at risk of theft, or otherwise being destroyed. Those items have value, and it's important that insurance policies be extended to cover them in the event that an applicable cause gets triggered.
This specific subset of insurance coverage protects the owner of an unfinished building from financial exposure, and it also protects the contractors that are carrying out the construction operation from experiencing an expensive loss of equipment. It is becoming increasingly common for major municipalities to require that insurance policies of this kind be purchased, regardless of which party does the purchasing, for buildings that are over a certain dollar value, or that will eventually possess a certain number of floors. Often, these requirements only apply within city limits, but exceptions do exist, and it's always best to check with the city authority presiding over any potential build site in order to ascertain whether or not they apply to the build site in question. After all, staying within the law is of utmost importance.
A typical builders risk policy will usually cover things that are exclusively caused by nature, or by geopolitical causes that are outside of the control of the involved parties, such as acts of destruction caused by warfare. It's important to note that they will also usually cover damage that's caused inadvertently during the construction process itself. Fires are a common clause trigger for this, since electrical wiring is being laid throughout the structure, and high-powered electric cutting tools are running.
While this is intended to be an extra blanket of protection for construction projects, there are still things that the vast majority of builder's insurance policies simply will not pay out for. Floods and earthquakes, despite being forces of nature, are usually not covered. This is because these types of natural disasters tend to affect buildings regardless of the state that they're in, and an unfinished structure isn't particularly more vulnerable to them than a finished one, by and large. In other words, they aren't risks that are inherently unique to the construction process.
This type of policy will also almost never cover damage that is carried out by the owner intentionally. While the notion that the owner of a building would intentionally sabotage his own project may seem silly upon cursory thought, it's important to remember that insurance fraud isn't all that uncommon, and construction-based insurance policies will not grant the owner any kind of special protection if this is found to be the case.
There's no hard limit on the time frame that a builder's insurance policy can apply to a piece of property. After all, a project's total build time can vary wildly, and can depend on the scale of the project, as well as the overall budget and resources of the contractors. The main restriction is that the building has to be deemed to still be under construction. Once it's completed, and legally eligible to be opened up to its intended purpose, the policy will be terminated.
About the Author
Leading insurance expert Carolyne Roehm has written extensively about the insurance industry. She is currently a guest blogger for numerous insurance websites. Her most recent postings can be found at http://www.CanonInsurance.com.
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