BUILDERS RISK FAQ's

Our agency specializes in writing commercial lines insurance for small business owners, especially contractors, developers and builders.  While construction of office towers and shopping centers may have slowed down due to the pandemic, residential construction and remodeling of apartments, condominiums, town homes and single family dwellings remains very robust.  There is still a lot of building and remodeling going on all over Texas but especially in major cities located in Dallas, Bexar, Collin, Denton, Harris, McClellan, Tarrant and Travis counties. As long as interest rates remains at historically low levels, we expect the torrid pace of building and remodeling to continue.

A lot of personal lines agents are not familiar with Builders Risk polices and many commercial lines agents do not like to write insurance for construction projects because there is a lot of work involved.  A Builders Risk policy requires specialized knowledge to manage the policy and help make the transition from a Builders Risk policy, which by its very nature is a one shot policy.  Builders Risk polices can be renewed if construction is delayed but the renewal is not automatic.  Builders Risk polices are generally not renewable and the contract has to be replaced with permanent insurance in the form of a Homeowner, Dwelling Fire, Vacant Policy, Commercial Fire Policy, Business Owners package policy, Commercial Package Policy, Condo or Town Home policy.  

Porter-Brandenburg Agency Inc. specializes in writing Builder Risk policies and we have received a lot of questions over the years so we have prepared a Q&A which hope will prove to be helpful in your purchase of a Builders Risk policy.  

Builders Risk FAQ

1. How much should we insure the property for?
This is the top questions that we get from builders, homeowners and developers who are getting ready to build a new dwelling or building from the ground up.  The simple answer is the completed cost of the construction project plus profit and overhead.  Of course, just about everyone except for the mortgage company realizes that we do not need to insure the land but only the cost of the building materials and labor.  What most do not think of are “soft costs” which includes interest on construction loans, real estate taxes, architectural fees, re-leasing expense, engineering, consultants, legal and even the insurance premium.  

2. Should we write the Builders Risk policy for a term of six months or one year?   
Most builders want to write a short-term policy of six months because they think that they can complete the project in three to six months.  When weather conditions are perfect and there is no labor or material shortage, an experienced builder can build a house in just a few months but more often than not things happen that are beyond builders control.  Several insurance companies who write Builders Risk policies will not write a six month policy.  Some insurance companies will offer a six month term policy, but our recommendation is to write an annual policy because there is a lot of paper work to extend a policy beyond six months and the insurance company is not obligated to offer renewal.  

Another thing to keep in mind, some companies have a minimum premium of $500 and for that premium, you can write an annual policy for the same price as a six month term.   
With some insurance companies you can cancel the policy and get a refund of the unearned premium. 

With other companies the premium is fully earned.  Some projects take more than a year to build and if this is known, the builder should write the policy for at least one year or negotiate a longer term if possible.  

3. What perils are covered? 
A Builders Risk policy can be written on either a “named perils” basis which covers the major perils of fire, windstorm and hail. Most named peril policies do not provide theft coverage.  An “all risk” policy provides coverage for theft and any peril that is not excluded.  Common exclusions are earthquake, flood, faulty design, poor workmanship, defective materials, weather damage to property in open, war, terrorism and contract penalty.  The “all risk” policy provides better coverage but is more expensive.  You want to make sure that your Builders Risk policy is “all risk” and that it also provides for materials in transit as well as materials that have to be stored off premises.  

4. When does coverage end on a Builders Risk policy? 
As soon as you get your Builders Risk policy, you should read your policy and look for the when coverage ends section of your policy. The Porter- Brandenburg Agency writes 90% of our builders risk policy with either US Assure, Navigators or Liberty Mutual and each company has a different time period for providing coverage after construction is completed.  The Liberty Mutual policy language follows:  

Coverage will end when one of the following occurs:

1. policy expires or is cancelled
2. a covered building or structure is accepted by the purchaser
3. your insurable interest in the covered property ceases
4. you abandon construction with no intent to complete it
5. A covered building or structure has been completed for more than 30 or 90 days. 

The period of completion time frame allowed by Liberty Mutual depends also upon the coverage form.  The 90 day time period is granted for new homes built from the ground up. The 30 day time period is for “Rehab” forms.  Liberty Mutual as well as most other insurance companies do not permit occupancy during the term of a builders risk policy unless permission is granted in writing.  

5. How do we insure dwellings that have been completed but not sold? 
When a dwelling has been completed but not sold, at some point it becomes vacant as defined by policy language which is usually 30 to 90 days after construction is completed.  All property policies have a vacancy clause which recognizes that there is an increase in hazard when a property is not occupied.  If a vacancy clause is applicable then certain perils such as vandalism or theft are excluded.  

6. Does the Builder’s risk policy cover liability?
No, Builders Risk policy does not cover liability.  Liability may be purchased for an additional premium on either a stand-alone General Liability policy or by endorsement which can be added to the Builders Risk policy.  The liability endorsement will cover “slip and fall” injuries.  

7. Are my tools covered on Builder’s risk policy?
A Builders Risk policy does not cover tools or equipment used by the contractor to construct the dwelling building.  A separate Contractor’s Equipment Policy or Tool Floater policy should be purchased to insure tools and equipment.