First, identify who has an insurable interest: who would suffer financial loss if the building is damaged or destroyed. Whoever is constructing the building—you or the general contractor—has an insurable interest from when construction starts through completion (you) or final acceptance and payment (general contractor). Subcontractors have an insurable interest from the beginning of their work until the general contractor pays and accepts their work.
Second, determine the total coverage amount needed. This includes direct damage exposure, income stream loss, appropriate perils, soft costs, and any amounts stipulated in agreements. Direct damage exposure is the total of labor, supplies, plus either the owner’s payments (to the general contractor and/or subcontractors) or the general contractor’s and subcontractor’s profit. Coverage should also include income lost from rental space, appropriate perils (flood or earthquake), and soft costs from damage during construction: architectural, engineering, financing, and legal fees. And the insurance needs to meet the requirements of the owner’s mortgage agreement and the construction agreement.
Once you know the coverage requirements, either the owner or the general contractor needs to secure a builders risk policy that provides the necessary coverage. The terms, conditions, and policy limits of the coverage should be the same in either scenario.
The business insurance experts with Koch Insurance Group can help you determine how much builders risk coverage you need. We can also help you find the best coverage value for your money.