Because buildings or structures under construction are not eligible for coverage under a regular property policy, they have to be insured under a different type of policy until they are completed. Builders risk insurance is a variation of property insurance in that it specifically applies to construction projects. It is sometimes referred to as “course of construction” insurance because it is covering a structure during the course of its construction. Builders risk coverage is written for a minimum term of one year. The effective date of the policy should be no later than the date that construction starts. If it is a structure with a basement, then it should start as soon as construction starts above the level of the lowest basement floor, or if there is no basement, then the date the construction begins. A builders risk policy is written for the completed value of the building. For example, a residential home with an insured value of $250,000 at completion should have a $250,000 policy limit on the builders risk policy while it is being constructed. This amount should include the value of all permanent fixtures and decorations that will become part of the building. Remember the contract price, selling price, or market value of a building does not necessarily reflect what the insured value of the building should be upon completion. A few items of note that are not covered on a builders risk policy are land and water, business personal property or property of others, lawns, trees, shrubs, plants, and detached signs. But most of these items would only be present at a business that is already in operation or a structure that is already complete. Blanket builders risk coverage, which would cover more than one structure, would be used for housing projects, large commercial building projects and other large risks with several units being constructed at the same time. The builders risk insured with more than one location may choose to cover all locations on a blanket basis.
The Basics of Builder’s Risk Insurance
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