Most insurance policies have a clear beginning and end date (also called the effective and expiration dates). Builder’s Risk coverage, however, can be different. Builder’s Risk coverage is placed for construction operations to cover a building during the course of construction. Built into the pricing is the changing value, recognizing that early in the project, a million dollar finished building has only $250,000 in it; as the project continues and more labor and materials are added, the value increases accordingly. Unlike many other insurance policies, in addition to the effective dates, there are 5 other situations in which insurance coverage can end:
- The project is accepted by the purchaser
Often, the builder is responsible for the insurance – the builder’s risk policy - during construction. Once the purchaser closes the deal with the builder, it becomes their responsibility.
- Insurable Interest ceases
Insurable interest is similar to and includes ownership as in the first example. Other insurable interest could include debtors on the property, such as a bank. When the bank changes, the former bank no longer has an ‘insurable interest’; if they’re holding the builder’s risk policy, someone else – with an insurable interest, such as a replacement bank - needs to place coverage.
- The project is abandoned without intent to complete
If the builder walks away from the project for whatever reason, the insurance company has an escape path too. Abandoned buildings pose a greater risk for vandalism, arson and other problems, so insurance companies have a way to avoid these. But people with remaining interests may need to place their own coverage if this happens.
- The project has been completed for 30 days
Once a occupancy permit or similar completion confirmation has been granted, a builder’s risk policy is no longer the right kind of insurance. Either the building or the owner can place property coverage easily and usually less expensively, as a replacement.
- The covered property has been put to its intended use
Similar to completion example above, once construction is done and the building begins its intended use as a factory, retail or other operation, different insurance (property) makes more sense, and is often less expensive anyway.
If any of the above applies, regardless of the dates on the policy, the builders risk coverage ceases. There are always other ways to insure these properties, depending on the construction phase or new use. If you have questions about your current builders risk policy, or need to obtain cost estimates for a new project, please contact us.