Builder’s Risk Insurance: Who Needs It and Why?

What do a nearly completed state-of-the-art resort, your neighbor’s extensive residential renovation, and your city’s new mall construction have in common? Before a single nail is hammered, all these projects were likely protected by builders risk insurance. That means those who are fiscally responsible for these projects are likely not losing sleep over perceived risks.

That peace of mind is more than a luxury – it’s a necessity. Many elements can impact the successful completion of a structure. Consider natural disasters like a fire that can incinerate a structural shell. Whether it’s 99% complete or barely visible, fire knows no boundaries. A hailstorm can damage building materials beyond repair. Earthquakes may unmoor an entire foundation. Builders risk insurance protects subcontractors, lenders or project owners’ investment from the drastic financial implications of such losses.

A huge attraction of builders risk insurance is that it offers a viable short-term solution for losses that would otherwise have huge monetary consequences. Those who have an insurable risk, as well as an insurable interest in the construction work, may elect to carry a policy, and though policies vary in terms of coverage amounts, the main idea is the same. Until every sheet of drywall is hung, all electricity is installed and inspected and tenants arrive to take ownership of the structure, building materials are insured.

As soon as construction is completed (or soon afterward) the protection afforded by builders risk insurance commonly ends. At this time, a more permanent form of property insurance is selected.

When Would You Need a Builder’s Risk Insurance Policy?

Builders risk insurance policies are often needed for the following:

• Residential and commercial construction (new) – What happens if building materials are damaged in transport en route to a construction project? Should vandalism on the job site occur, who will recoup those costs? Builders risk insurance offers safety from these risks; should they occur, a payout will cover the loss up to the policy limit. Not sure if your project is fully insured for such loss? An insurance agent can evaluate your project risk and ensure your policy offers full coverage.

• Remodels – Still wondering whether your residential remodel requires builders risk insurance? If you hire a contractor who holds a policy, you may not need to acquire one. Call your insurance professional and explain your situation. Remember also that builder’s risk insurance does not include any personal items that would be found in a home upon move-in. It does not denote protection of contents – instead, it offers protection for building materials used in the project.

If builders risk insurance is on your to-do list, trust an informed insurance professional to assess your risk and adequately protect the investment with an appropriate policy. Contact Wallace Welch & Willingham Inc. with any and all questions regarding builders risk insurance.