For construction projects, lenders’ financing documents are a great place to start when determining the appropriate arrangement of builders risk insurance coverage to secure for your client. However, that information tells only part of the story. Agents shouldn’t stop there — the construction agreement outlines mandatory coverages, but should only be relied on to determine the minimum insurance needs for the project.
Agents need to know the right questions to ask clients to help identify how much builders risk coverage and what endorsements will help ease the loss from costly damages. Use the following six points to begin the discussion with your clients:
- Ask the builder to provide their cost breakdown of hard and soft costs. Does the client understand that soft costs such as advertising expenses, property tax assessments, interest on construction loans, and more are often not covered by basic builders risk policies? Discuss adding coverage for these and other soft costs through a policy endorsement.
- What about potentially higher costs associated with “green” construction? If the building will be registered with the U.S. Green Building Council, the client may wish to add coverage through a policy endorsement for costs associated with attaining or maintaining LEED® building standards, air quality management and debris recycling.
- Are default limits enough? Default limits may be insufficient to cover a client’s potential losses in a construction project. Agents should also ensure clients understand that failure to report changes in materials or values could result in being underinsured unless change order coverage is selected or the change in value is properly reported before a claim occurs.
- If the insurance client is a landlord or business and a covered loss occurs, there may be a delay in starting/restarting business operations or in being able to collect rent payments. In addition, the owner may incur extra expenses of having to operate elsewhere during the period of delay. Can the client afford to lose this income and pay these extra expenses out of pocket? Agents should discuss the coverages available under the business income and extra expense endorsement.
- Will the client be installing entranceway signs or walls, fences or walls that border a development or subdivision, or retention pond fences? If so, additional coverage may be appropriate to cover these dividers.
- If earthquake and flood coverage are available, does the client understand the risk of loss if such coverage is not selected? The damage caused by both floods and earthquakes can have significant financial implications, and result in unforeseen construction and even business delays for clients. Agents should advise clients to consider enhancing their builders risk policy with flood and earthquake coverage in order to safeguard against costly catastrophic loss resulting from these events.
This is not a comprehensive list of questions, and other policy endorsements may be available. By delving deeper into these areas, agents can help protect clients against devastating financial losses.
Agents offering builders risk insurance should have a solid understanding of the specialty coverages and endorsements that offer added value and financial protection. Download Reducing Risk: 5 Coverages Worth Considering to learn important considerations for agents regarding five often-overlooked builders risk coverages and endorsements.
This is intended as a general description of certain types of insurance and services available to qualified customers. Your policy is the contract that specifically and fully describes your coverage. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.
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