When Does Builders Risk Coverage End?

Builders risk insurance provides coverage for buildings and structures while they are undergoing construction or renovation. This specialized property insurance protects against various perils like fire, theft, vandalism, and wind damage. It is typically obtained by property owners, contractors, or other parties with a financial interest in the project.

Common Termination Triggers

Builders risk coverage is designed to end when specific project-related events occur, signaling a shift from construction-phase risks to operational risks. These triggers are event-driven rather than solely time-driven. Coverage typically ceases upon the earliest of these defined events.

One primary trigger is substantial completion, which signifies that the building can be used for its intended purpose, even if minor work remains. This milestone often involves the architect or engineer issuing a certificate of substantial completion, confirming the structure is ready for occupancy or use. At this point, the responsibility for the project often shifts from the contractor to the owner, and the owner is expected to secure a permanent property insurance policy.

Another event that typically terminates builders risk coverage is the first occupancy of the structure, either in whole or in part. If any portion of the building is occupied or put to its intended use, coverage for that part, or sometimes the entire project, can end. For example, if a multi-unit building allows tenants to move into completed sections while other parts are still under construction, the policy may cease for the occupied units.

Coverage also commonly ceases upon the sale or transfer of ownership of the property. When the property is accepted by a new owner or buyer, the original policyholder’s insurable interest in the property often concludes. This means the financial stake and associated risk transfer to the new owner, necessitating a change in insurance coverage. The new owner must then secure their own property insurance to protect their interest in the completed or partially completed structure.

Policy Expiration and Cancellation

Beyond project milestones, builders risk coverage can conclude due to the policy’s defined term or actions taken by the insured or insurer. Builders risk policies are temporary, typically issued for a specific duration. If a construction project extends beyond the policy’s expiration date, coverage will automatically end unless the policy is renewed or extended. Renewing a policy often involves additional premiums and may be more challenging for projects exceeding two years.

An insured party might choose to cancel a builders risk policy for various reasons. For instance, if a project is completed ahead of schedule, the insured may no longer need the coverage and can request cancellation. Similarly, if a construction project is abandoned with no intention of completion, the policyholder’s insurable interest effectively ceases, leading to policy cancellation. While some policies may offer a partial premium refund upon early cancellation, many builders risk policies are considered “one-shot” policies, meaning premiums are fully earned and non-refundable.

Conversely, an insurance company may cancel a builders risk policy under certain circumstances. Non-payment of premiums is a standard reason for an insurer to terminate coverage. Material misrepresentation during the application process can also lead to cancellation. Additionally, a significant change in the project’s risk profile that was not disclosed or agreed upon might prompt an insurer to cancel the policy.