Oct. 19, 2021
Unlike other types of insurance, Builders Risk insurance can have a complicated end date. We're here to help.
If you have previous experience with purchasing insurance policies, then you understand that most policies have a clear beginning and a clear end. Insurance companies typically call these effective and expiration dates.
However, if you're new to the world of construction insurance, then you might not understand when Builders Risk coverage is ineffective. Builders risk is different because it doesn't always have a perfect expiration date. This type of insurance coverage is decided during the course of construction.
Builders Risk insurance is meant to cover a building's worth based on the percentage of the completed project. As such, the insurance policy increases in value as time goes on. Due to the unique factors presented above, there are a few ways that the effective date of Builders Risk insurance becomes invalid. Today we're going to talk about four major ways this can happen.
The Owner or Purchaser Takes Over
During construction, the general contractor will be responsible for the insurance of the construction project. However, if the owner takes over the project, then the insurance becomes invalid. The owner could be the bank, original property owner, or purchaser. In any case, it does not matter how complete the project is. Builders Risk insurance will no longer cover anything that happens on-site. A new type of policy must be purchased.
Insurable Interest Changes
An insurable interest is someone who is involved with the construction project. This could be the bank, investors, or the owner. If any of those parties change during the course of construction, then the insurance needs to be changed to represent that. The old insurance will become invalid, and a new insurance policy will need to be drafted with the updated insurable interests.
The Project Will Not Be Completed
Builders Risk insurance coverage does not extend past the intent to complete. That means if a construction company walks away from a site without intending to finish the construction, then Builders Risk Insurance no longer covers the site. The insurance company does not want to take the risk of insuring an abandoned building due to its higher risk of vandalization in the form of graffiti, fire, or break-ins. The owner of the site can purchase a separate and more expensive insurance policy if they still wish for the abandoned site to be insured.
The Property Is Being Used
If during construction the property begins to be actively used in its intended manner, Builders Risk insurance will no longer cover the site. For example, let's say that an apartment complex is being built. During the course of construction, people move into the completed apartments, but the whole building is not yet done. At this point, Builders Risk insurance will have to be changed to something like property insurance. It's cheaper and covers what is actively happening on the site. Additional insurance can be purchased to cover the construction also happening on site.