No matter how large or small your contracting business is, you face risks during the course of your projects. Course of construction insurance, or builder’s risk insurance, is designed to provide your business with protection throughout the building process. In most cases, builder’s risk insurance protects the investment you have in a construction project from loss due to fire, storm damage, theft and vandalism. Extensions may be purchased that can include other events including earthquakes and flooding.
Differences in Replacement and Project Costs
You should be aware of how anticipated replacement costs and current costs vary. The total cost of your contract will include all the materials, labor, permits, sub-contractor work and your profit. While you may purchase insurance for the total cost of the project, an insurer will likely base your insurance on the progression of the work.
If the project is halfway completed and suffers a total loss due to fire, an insurance company will most likely pay the investment that you have lost in the course of construction, to the date of the loss. For example, the total cost of a project that you are insuring may be $300,000. Your costs, or the amount you have invested in the work, will include all the man-hours of labor and materials that are lost because of the covered event. Projected future labor and unused, undamaged materials would not be included.
Coverage normally includes your costs for removal of damaged materials and site clean up. Any fees associated with fire department services are also normally part of a policy.
Builder’s risk includes theft of materials. Other damages to materials, including vandalism, are normally part of a builder’s risk policy. As the contractor, you are required to make the effort to ensure that materials are stored securely. If you do not provide adequate protection for materials and equipment, your claim may be denied.
Look for Coverage Gaps and Exclusions in Your Policy
Not all course of construction protection will include coverage for your materials, while the materials are being transported to a work site. If your protection is based on the progress of a job, you must ensure that you keep the insurance company up-to-date on the progress. Insurance inspectors will often visit large sites to determine the extent of completion.
Exclusions to normal risk policies include employee theft, mechanical failure of your equipment, weather damage to unprotected property and contract failures. Always read your policy carefully to fully understand your coverage and any requirements you must meet.
Contractors are required to keep to the building schedules set in a contract. If you do not meet your completion dates, you can be subject to a reduction in payment. You do not need to face delays in obtaining the insurance you need to begin a project. Delays in receiving the documentation you need can also be costly. When you need builder’s risk insurance, work with a company that knows your industry and pays attention to your individual needs.