Construction is an important activity but not without its inherent risks. A building under construction is subject to many risks like fire, winds, etc. At the same time, workers involved in construction activity are also under risk due to the dangerous nature of their work. The contractor is also under risk due to the possibility of damage to his employees and equipment. There are comprehensive insurance policies that address all these concerns, broadly classified into Construction Insurance and Contractors Insurance.

What Is Construction Insurance?

Construction insurance, also known as Builders Risk insurance, is insurance that protects against unforeseen expenditures during the construction phase of a home or a commercial building. It is a special type of property insurance that protects "a persons or organizations insurable interest in materials, fixtures and equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause". It is distinct from Homeowners insurance that protects the structure and its contents after it is occupied.

Homeowners may be under the wrong impression that a contractor is liable for damage caused to a home under construction, but that is applicable only if the contractor or his workers were negligent, resulting in the damage The homeowner must protect his investment with a builders risk policy.

Even though a builders risk policy protects a building under construction from losses due to fire, vandalism, theft, lightning and wind, it usually does not provide coverage against losses due to earthquake, flood, acts of war, or intentional acts of the owner. The insurance agency may ask for a copy of the home building contract before issuing a policy. Although such a policy is usually taken out by the homeowner or the title holder, the general contractor in charge of construction may also buy such insurance if its specified in the contract.

A builder's risk or construction insurance policy is valid for one year from the date of issuance, or until construction finishes, whichever is earlier. If construction finishes before one year, the customer can negotiate to have part of the premium rolled over for a homeowner's policy. If construction is still happening after one year, the existing policy lapses and a new policy will have to be issued.

What Is Contractors Insurance?

Contractors insurance is insurance taken out by a contractor to protect his firm from unforeseen damages. This includes general liability claims, equipment damage and workers compensation claims. General liability refers to a situation where the contractor firm or any of its employees are at fault, such as failing to follow state regulations during construction. Contractors insurance will allow the firm to limit its losses in such a situation. Workers compensation refers to the charges associated with ensuring the safety of the firm's employees during duty hours. If a worker is injured during construction, the insurance provider will cover the medical expenses. Contractors insurance also protects the firm's expensive equipment from damage due to theft, vandalism or natural disasters. The contractor's vehicles are also covered under the commercial auto and truck policy.

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