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What is builder's risk insurance and who needs it?

When a home, building or other structure has any repairs, renovations, additions or any type of construction-incurred expense to it, builder's risk insurance can help protect against certain damage and physical loss. During this time, there's an inherent risk of destruction to the structure or fixtures, as well as to construction tools, materials, technology or equipment. Replacement and repair of this property can be costly and hamper business along with daily living. This type of insurance can safeguard a specific covered interest in the property during the building process.

A candidate for builder's risk insurance is anyone who has a vested interest during the construction phase of a property's attachment and has the potential for loss, such as a custom builder, general contractor or property owner. It may be necessary to provide proof of this insurance to satisfy the requirements of the local city, county and state building codes. Many property agreements may have it as a condition that must be included.

Who benefits from it? As a result of a loss during the construction phase, the recipient of the disbursed funds of an approved claim has control of how the monies will be distributed. This is a benefit to whomever retains the policy. If the property owner retains this control, then the owner can provide the funds to the employed parties to ensure the project gets completed. If the contractor owns the policy, then the funds go directly to that person or entity to distribute accordingly. Whoever holds the insurance policy directly obtains the benefits and manages the payout of the claim.

During property development, there are potential threats and unforeseeable circumstances that can cause ruin, including fire, wind, theft and vandalism. Take for example a fire that burns down the structure and destroys the construction equipment. These unexpected situations can leave the contractor or property owner open to liability and loss. Builder's risk insurance provides a safety net for the policy holder to cover both the holder's property loss as well as an additional party's property loss associated with the construction.

Coverage starts at the onset of the work and insures the project until it's finalized, and the home, building, or structure is ready for use or occupancy. At this time, if no covered event occurs, the policy has done its job and expires. These unexpected conditions are the risk factors, and, should any of these events occur, builder's risk insurance is there to help pick up the pieces.

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