Even knowing who should be covered under builders risk insurance does not always settle the question of who is paying for it. After all, there are a lot of players who stand to lose out financially if an unfinished project is damaged.  

There are typically two parties that may purchase and carry a builder’s risk insurance policy: a general contractor or the project owner. 

General Contractors Insurance 
General contractors may often invest in builder’s risk insurance in order to protect their work tools and time. Builder’s risk insurance will help compensate the contractor for equipment and tools that may have been left on the job site. It covers against theft, vandalism, wind, hail, rain and other causes of damage or destruction. 

Builder’s Risk Insurance for Project Owners 
Project owners and developers also have a large investment in a construction project. If a general contractor doesn’t carry builder’s risk insurance, a disaster could set a project back by months as well as cost the owner tons of money. 

For example, say a bad storm sweeps in three months into a project. Rain and hail ruins the exposed walls of a new hotel being created. The general contractor doesn’t have builder’s risk insurance and most of their equipment was ruined in the storm. While they may have some insurance to cover their equipment, this means the project owner will have to pay for new materials and spend more time as the project is torn down and rebuilt. 

With builder’s risk insurance, the project owner can receive compensation for the damaged or destroyed project materials that were not yet completed. This way, you don’t have to start all the way from square one after an incident. 

Before starting a project, each party should make sure they are on the same page, especially when it comes to insurance. There is no harm with both parties carrying insurance to cover their potential losses, but it is hazardous for neither party to have any insurance. 

Project owners don’t always have builder’s risk insurance and their limits may not be enough to replace all of the tools or equipment a contractor loses. Likewise, general contractors should have insurance that covers the project in progress as well as their tools and equipment. 

Safe is better than sorry, and every party with a financial stake in a project should take accountability when it comes to insurance. 

Is Builders Risk Insurance Required? 
Project owners may require general contractors to purchase and carry builder’s risk insurance. This means that the contractor must pay for this coverage if they wish to work on the project in question. In some cases, however, project owners may pay for this insurance themselves or carry their own policy. 

Make sure you and other involved parties understand who is carrying insurance and what to do in case a claim needs to be filed. 

Who Should File a Claim for Builder’s Risk Insurance? 
Ideally, the policyholder should file a claim on the builder’s risk insurance policy in case of an accident or disaster. If an accident occurs that warrants a claim, the policyholder should immediately contact their insurance agent in order to discuss the incident and possibly file a claim. 

Compensation will typically go to the policyholder, as well, in order to accommodate for damages and financial loss. For example, say the project owner carries builder’s risk insurance and files a claim. Since they are the policyholder, they will receive compensation to either repair or replace what was damaged or even possibly hire another contractor depending on the circumstances.  

All parties should at least speak with an insurance agent about protecting their investment in an expensive project.  

What is the Difference Between Builder’s Risk and a Construction Bond? 
In some cases, surety bonds are required for completing certain construction projects. Surety bonds are not the same as insurance. In some cases, you may only need one or the other while in other cases, you could need both. 

There are various surety bonds designed to primarily protect the investors and project managers involved in the project rather than protecting the contractors. These types of surety bonds typically guarantee that work will be done according to the contract agreed upon by all parties. 

This type of bond does not cover physical assets of the project as with builder’s risk insurance, however. Speak with your contractors and project managers to figure out the specific requirements. Even if you require a bond, you should also consider carrying builder’s risk insurance.