Until a newly constructed building is complete, it is in a far more vulnerable state than a completed home or commercial structure. And until a residential property is 100 percent complete, from the paint to the light fixtures, most jurisdictions will not issue a certificate of occupancy. This means that homes under construction will often be left to the mercy of the elements and the public’s goodwill for up to 12 hours per day.
On top of that, buildings that are not completed, especially wood-frame structures, are far more vulnerable to both fire and vandalism than completed properties. All told, construction site risks are considerable. And this is reflected in the billions of dollars in losses each year that property owners and builders incur due to construction site damage. For small builders and individual homeowners, experiencing the total loss of a building that is under construction may leave them in dire financial condition. For many, even a small risk of a total loss on a property under construction must be completely eliminated or the project will not be financially viable.
Builder’s risk insurance provides a solution that allows homeowners and builders to go through with projects whose loss would represent a personal or business catastrophe. In the United States, it is mostly incumbent upon the property owners themselves to ensure that adequate builder’s risk insurance has been taken out on any new construction. In many cases, a property owner that allows construction to begin without builder’s risk insurance may find themselves owing for theretofore completed work and materials used should the property experience a loss.
However, increasingly, many construction firms and developers are proactively getting their own builder’s risk insurance. This gives them an additional selling point, offering blanket protection for the new building’s owner should misfortune strike. From the perspective of a construction or development company, builder’s risk insurance also guarantees that they will be paid in the event of an insured loss rather than attempting to collect from the owner of a nonexistent property who may elect bankruptcy rather than shelling out a six-figure settlement.
While being built, structures face a number of significant risks, many of which are likely to result in the total loss of the building’s value if they occur. Builder’s risk insurance protects builders and property owners from the majority of these risks. Perils that are often insured against with builder’s risk policies include:
- Fire. Each year in the United States, billions of dollars’ worth of damage occurs to buildings under construction as the result of fire. Without the fire protection of completed buildings, a shocking number of these cases result in the total loss of the structure’s value.
- Wind. Wind is generally a more serious threat to buildings while they’re still under construction.
- Theft. Each year in the United States, construction site theft costs contractors billions of dollars. Few cases result in equipment or materials ever being recovered. And most cases of construction-site theft are never solved.
- Lightening. A direct lightning strike on a stick-frame construction site will often result in catastrophic fire.
- Vandalism. Second only to fire as a cause of serious loss on construction sites, vandalism is responsible for billions of dollars in direct and indirect losses to builders and property owners each year. Construction sites are often poorly secured, with vandals perceiving them as easy targets.
For both companies and property owners involved in the construction of new buildings, builder’s risk insurance provides critical protections during a building’s most vulnerable phases. For property owners, builder’s risk insurance allows for the mitigation of risks that would otherwise be unacceptable, potentially resulting in ruinous losses that could easily lead to personal bankruptcy should a property under construction be decimated by fire, vandalism or another peril.
For construction companies and developers, builder’s risk insurance can likewise reduce catastrophic risks while also reassuring clients that their investment will be safe even if the worst happens during the construction phase of their new building.
In addition to builder’s risk insurance, Velox Insurance offers many other forms of protection that are critical to businesses, including general liability, commercial auto insurance, business owner’s policies and professional liability insurance.