The House Insurance Built
Risk Management for Builders & Contractors

Chapter 2: Understanding Construction & Contracting Insurance Policies
Part 4: Endorsements for Contractors & Construction Professionals

Adequate insurance coverage isn't just a savvy business move — it could be the difference between growing your business and folding after a setback. But it's important to know that even a comprehensive insurance plan can't account for every accident, injury, or loss you may encounter. Each plan has its limits and exclusions.

So what are your options when you need coverage for something your policy doesn't provide? You turn to endorsements (aka "riders"). An endorsement is as an added provision to an insurance policy that modifies the coverage. It can add protection for acts or circumstances that are not covered in the original policy.

For example, we mentioned earlier that Inland Marine Insurance can be added as an endorsement to your Property plan, lending the policy mobility it didn't have before.

Below we explore some more endorsements that can fill gaps in your coverage.

Builders' Risk Coverage

A building under construction faces different damage risks than completed buildings do. For this reason, your project-in-progress may be exposed to hazards that your other policies may not cover.

So if you're a custom builder or a general contractor, you may want to purchase Builders' Risk Insurance, a special type of Property Insurance that covers damage to buildings while they are under construction. (Note: sometimes, the property owner may purchase the coverage, too.) This coverage may even be required as a condition to many contracts or part of building code compliance.

The policy can be purchased as an endorsement to your Property Insurance or as a standalone policy. When you have Builders' Risk Insurance, you are indemnified for loss or damage (as a result of a covered event) to a building under construction.

For example, say a tornado levels a building that is halfway finished, and your Builder's Risk policy is for the replacement value of the building. Your coverage would compensate you for half of the completed building's value.

Typically, Builders' Risk Insurance covers loss or damage due to…

  • Fire.
  • Lightening.
  • Windstorm.
  • Hail.
  • Vandalism.

There are two types of Builders' Risk policies: the "named-perils" form and the "all-risk" form. The named-perils coverage is usually less expensive because it only covers damage caused by perils (loss events) listed in the policy. All-risk coverage is a broader form and provides coverage against all risks not specifically excluded in the policy. This option can even extend to cover building materials on- or off-site.

Coverage is only applicable during the construction period. Once the building is complete, the owner is responsible for purchasing their own Property Insurance.

Installation Floaters

Installation Floaters (or Installers Floaters) are a type of Inland Marine Insurance that covers equipment and machinery that will be installed in a building (such as air conditioning and heating units). This coverage can "float" with the items, protecting them during transit, installation, and testing at the purchaser's premises. This policy covers the property until the purchaser accepts the installation work or when your interest in the installed property ends.

For example, let's say a HVAC contractor is hired to install a new heating unit at a customer's home. On the way to the house, his truck hits some major potholes, and the unit is damaged. However, replacing the unit will set the contractor back a cool $10,000.

If the contractor has an Installation Floater, he would only need to pay the deductible, rather than lose profit on purchasing a new unit.

Next: Part 5: How Do My Insurance Needs Change When I Hire Employees?

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