Function

• Builders risk insurance is property insurance that is taken out on a structure while it is being constructed, renovated or repaired. Its purpose is to protect in case of damage or losses that the building may sustain during the construction period.
  
  

Types

• The insurance compensates the policy holder in the event of such disasters as fires or explosions. It can also protect against losses related to vandalism, theft, supplies lost in transit to the work site and materials that were either installed or uninstalled.
  
  

Misconceptions

• The insurance doesn't cover losses incurred before construction begins or after it is finished. People also tend to assume their policy automatically covers any incidents that occur on the site. Earthquakes, loss of income resulting from a delayed opening and extra expenses from loan interest are among optional coverages the policy holder must pay extra for.
  
  

Size

• The insurance policy can be taken out on residential and commercial properties alike, such as townhouses, condominiums, single-family homes, office parks, strip malls, hotels, restaurants, stadiums, theaters and museums.
  
  

Significance

• Many lenders won't approve a loan for construction without builders risk insurance. Environmental changes have resulted in more extreme weather events like hurricanes and tornadoes, placing sites in such states as Florida and Oklahoma at a greater risk for losses. Society has also become increasingly litigious, making this protection a necessary part of construction costs.
  
  

Benefits

• Depending on the policy, builders risk insurance can provide compensation for property damage in case of such extreme events as flooding, earthquakes or terrorism, or having to clean up the site due to it being polluted. Coverage can equal 100 percent of the building's completed value.
  
  

Warning

• The property owner and the contractor should review the building contract together to be clear on who is responsible for purchasing the insurance to prevent any liabilities or lawsuits. They should also go over the policy together to verify what coverage has been obtained.