The construction industry in Alabama is booming, particularly when it comes to the building of new homes. According to data compiled by the University of Alabama in December of 2020, permits for new home construction increased 43.4% from one year prior.
But what if you were in the process of building a house, and it got wiped out midway through by a disaster like a tornado? If your construction project is covered by builders risk insurance, you can rest assured that this disaster will not cause you significant financial losses. Talk to an independent insurance agent in Alabama for help finding a suitable builders risk insurance policy.
What Is Builders Risk Insurance?
Also known as “course of construction insurance,” builders risk insurance is a type of property insurance that is specially designed to cover building materials, construction equipment, and structures that are currently under construction or renovation.
These temporary policies typically begin coverage once all work contracts have been signed, and end when the project is completed.
What Does Builders Risk Insurance Cover in Alabama?
Alabama builders risk insurance is designed to cover your building materials and property against many of the hazards you are likely to face while completing construction projects in Alabama. It can also cover a variety of peripheral losses known as “soft costs.”
Keep in mind that different insurance companies offer different ranges of coverage. While one company’s builders risk insurance may include coverage for subcontractor’s tools and equipment, for instance, another may not. Likewise, while some may cover against certain types of water damage, others may not.
That is why the least expensive policy is not always the best option, and why working with an independent insurance agent can be beneficial. Your agent can explain what the policies you are considering do and do not cover in greater detail so you can make an informed decision before making a purchase.
What Construction Hazards Are Covered by Alabama Builders Risk Insurance?
There are several different hazards that pose a risk in Alabama. If you purchase a named-peril builders risk insurance policy, you will only be covered against the risks you specify when making a purchase.
Most builders choose to purchase what is known as “all risk coverage.” When you have builders all risk insurance, you will be covered against all potential hazards except those that are specifically excluded, like floods and earthquakes. You can expect an all-risk policy to cover against the following.
- Fires, including accidental fires, wildfires, and arson
- Severe storms, including electrical storms, windstorms, and hailstorms
- Acts of God, including hurricanes and tornadoes
- Property crimes, including theft and vandalism
Given that Alabama sees about 44 tornadoes a year and is prone to damage caused by hurricanes, tropical storms, and other severe weather hazards, this coverage can prove vital.
Is Construction Property Covered by Alabama Builders Risk Insurance?
Builders risk insurance is designed to cover property such as building materials, supplies, tools, machinery, and equipment if it is lost or damaged due to a covered event.
You can extend the coverage by purchasing special endorsement for certain items such as the following.
- Temporary structures at the job site
- Construction forms, plans, blueprints, and other valuable papers
- Property in temporary storage
- Debris removal and disposal
An independent agent can help you go over your construction property to ensure that you have all the extensions necessary for it to be fully covered by your builders risk insurance policy.
What Are Soft Costs Covered by Alabama Builders Risk Insurance?
Soft costs are extra expenses or financial losses that are incurred due to a delay in the project completion date. Your policy must include soft cost coverage, which is an additional endorsement, in order for you to be covered. Some examples of soft costs that your policy may cover include the following.
- Loss of sales
- Loss of rental income
- Real estate taxes
- Insurance renewal premiums
- Legal fees
- Architectural fees
- Accounting fees
- Marketing expenses
- Additional interest on loans
An independent insurance agent can explain more about soft cost coverage and can help you review how much it will cost to include this endorsement in your builders risk insurance policy.
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What Is Not Covered by Builders Risk Insurance in Alabama?
There are a few risks that are specifically not covered by builders risk insurance. To be covered against these, you may need to purchase supplemental coverage, if it's available.
- Poor design or workmanship: If a project collapses or fails due to being badly designed, built, or planned, or if the materials used in construction were substandard and unable to support the structure, your policy is unlikely to provide coverage.
- Machinery malfunction: Although builders risk insurance can cover your machinery and equipment if it is damaged by a covered event, it does not cover mechanical malfunctions and breakdowns. For that, you will need coverage through equipment & machinery insurance.
- Floods: While flooding and water damage caused by a leaky pipe or a damaged roof may be covered, ground-up flooding caused by heavy rains, hurricanes, and storm surges is not. If your project is at risk for flood damage, talk to an independent agent for information about purchasing flood insurance. Flood insurance policies take 30 days to go into effect, so some pre-planning is necessary.
- Employee theft: Although your builders risk insurance policy will cover against theft and vandalism if it is done by a third party, it will not cover you if the theft is done by one of your employees or subcontractors. You can protect your business interests by running background checks on potential employees before hiring them.
- Your construction vehicles: Builders risk insurance can cover your tools, equipment, and materials if they are damaged while in transit to or from your work sites, but it will not cover the vehicles that are doing the transporting. These vehicles will instead need to be covered by a commercial vehicle insurance policy that meets Alabama’s minimum coverage requirements.
- Acts of war or terror: While the risk of this being a problem in Alabama is minuscule, it is important to be aware that if your building project is destroyed by a bomb or other act of war or terror, your insurance provider may not cover your losses. There are insurance policies that can be purchased against this risk. If you are interested in learning more, you can talk to a local independent agent.
Local independent insurance agents can make sure that you are fully aware of your builders risk insurance policy limitations and can help you purchase supplemental policies if available and necessary.
Are Construction Workers Responsible for Purchasing Builders Risk Insurance in Alabama?
So, if you are about to start on a construction job, you may be wondering, “Do I need builders risk insurance?” In short, if you are taking on all or part of the financial risk on the project, then yes, you should be covered.
In general, these policies are the responsibility of either the general contractor or the owner/developer on the project. Anyone who has a financial interest in the project should be named in the policy. This can include:
- The property owner
- The general contractor
- Any subcontractors hire on the job
It is important to know that if you are a homeowner who is taking on a large renovation project, your homeowners insurance will not provide coverage if something goes wrong during the renovation.
Fortunately, by having homeowners builders risk insurance, or being named on a policy purchased by a general contractor, you will have coverage.
How Much Does Builders Insurance Cost in Alabama?
The cost of builders insurance can vary as it is calculated according to several different factors such as the following.
- The size of the project
- The construction costs associated with the project
- The coverage options and endorsements included in your policy
- The amount of your deductible
As a general rule of thumb, you can estimate your builders risks insurance costs to range from about 1% to 4% of your total construction costs.
The only way to get an accurate price, of course, is by requesting customized quotes. A local independent insurance agent can help you compare costs from a few competing providers.
How to Find the Best Builders Risk Insurance in Alabama
Before you start your next construction or renovation project, be sure to talk to a local independent insurance agent. These experienced professionals can help you be certain that all of your property is suitably covered, and that all of your potential risks are mitigated by the right insurance products.
Best of all, because these agents are free to work with a variety of insurance providers, they can save you time and money by shopping around to find you the best coverage at the most competitive price. There are more than 330 independent agents with offices in Alabama. Set up an obligation-free consultation with an insurance agent near you to get started.
TrustedChoice.com Article | Reviewed by Jeffrey Green
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