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Builder's Risk Insurance--When Do You Need It?

Whether you are renovating your own a building, building a completely new one, or adding improvements to your property, builder's risk insurance may be something to check out. It is sometimes known as "course of construction insurance" and is a specialized type of property insurance.

Buildings are subject to many different risks while under construction. Builder's risk insurance covers the policyholder against damage to buildings while they are under construction. Under common law, it states that any new construction or improvement to land becomes the property of the title holder (owner) of the land once said improvement is finished. Builder's risk insurance is usually bought by the owner of the building or land. Occasionally the general contractor will buy it instead, if it is stated as a requirement in the contract.

Usually the general contractor doesn't pay for this insurance because they are only responsible for any losses due to their negligence. The owner, however, is responsible for most other losses. The most common damages covered include those due to fire, high winds, and vandalism. In most cases the coverage last only during the construction period and does not cover damages due to earthquakes, flood, acts of war, or intentional acts of the owner.

Another important exclusion to remember is that damage resulting from faulty design, planning, workmanship, and materials are not covered. Also, the policy has a limit on coverage. So make sure that the limit accurately reflects the total completed value of the building, excluding land value. A great way to gage the limit is to look at the construction budget.

If a project involves any sort of additions or renovations to an already existing building, the owner's existing property insurance may cover the construction. It is an important thing to check on during the planning stages. It may also be necessary to show proof of insurance for local, city, or state buildings codes. Insurance can be a hassle to deal with, but it's always something that can help you in the long run.

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