Here’s a list of the most common Builders Risk coverage problems that we see when we analyze policy forms that are offered by our competitors. These problems are typically found on policy forms used by insurance carriers that specialize in writing personal insurance. In other words, the ones that advertise most frequently on TV.
The first is an exclusion for the theft of building materials before they’re permanently attached to the building structure. If your policy has this exclusion, it could be an expensive mistake if a heating and air unit or other expensive appliances or materials are stolen shortly after delivery.
The second common policy exclusion is collapse of the building structure. Several years ago, one of our builder clients had a collapse to the tune of about $30,000 when the unbraced framing of a house blew down during a severe thunderstorm. It would have been bad news had he had the collapse exclusion.
The final common problem is when the policy form does not allow the builder to insure reasonable profit. If you don’t have coverage for profit, you’ll end up having to build the structure two times but only get paid for your profit once. That doesn’t make sense because the purpose of insurance is to make you whole after suffering a loss. I strongly recommend that you should always buy your policy from an insurance carrier that allows you to insure profit and profit should be built into your estimated value for your start.