Construction insurance is a prerequisite for any construction project. By definition, construction insurance is the kind of insurance policy that offers compensation for any losses that might be incurred during the building of a structure. Construction insurance is important because there are lots of errors, mistakes and unforeseen eventualities that might occur during the project life cycle. Such scenarios can lead to damages and losses, and it, therefore, helps to have a safeguard to ensure you do not incur losses that could have been easily prevented.
Good construction insurance should not only cover the losses incurred due to property damage but also personal injuries on the contractors from an accident that happened as a result of the construction work. The injury could be anything from falling to mishandling some of the construction equipment. It is possible for a contractor to declare himself bankrupt or just to default on a project without any explanations. A performance bond usually protects the owner from any loss if the contractor they are working with fails to deliver the deliverables as stipulated in the contract.
Types of construction insurance
There are usually two types of construction insurance policies – the project based policies and annual policies. A project based policy is one that is taken only when a construction project is scheduled, and it lasts for only the time the project will last. As the name suggests, annual policies run for the entire year. Annual policies are ideal for contractors and businesses in the construction and remodeling businesses while project-based policies are ideal for a homeowner that is undertaking a home remodeling DIY project.
Breakdown of annual policies
Annual policies are broken down further into two categories. Firstly, we have the option of a run-off policy or a project commencing policy. This is the kind of policy that covers any project meeting the specified characteristics, and it commences from the start of the policy period until at such a time as when construction liability period is over. Secondly, we have the turnover policy. This type of policy covers projects that are being worked on during the period of the policy. Projects that are finished within the 12 months of the policy are followed by the cover that is provided during the defects liability period. Should the project however not be completed within the 12-month window, there will be no defects and liability period attached. In simple terms, the projects that will still be under execution will no longer be insured.
When choosing construction insurance, take time to understand the fine print because the devil is usually in the detail. There are some important key-words and key-word-phrases that you should pay attention to. For instance, you want to ensure it has a cross-liability clause. This clause will explain the extent of the cover as pertaining to all stakeholders in the building project. A waiver of subrogation would means that the insurance provider cannot sue any of the entities or individuals they have insured.