Builder's Risk Insurance

What it covers and what it leaves out.

The policy insures the work in place and the materials that will become part of it, from groundbreaking to completion. Common exclusions are earthquake and flood unless they are added by endorsement, faulty workmanship and design, and the contractor's tools and equipment, which fall under other policies. It is not liability coverage: an injury on the site is the general liability policy's business. Soft cost coverage, an optional extension, pays the added interest, fees and re-permitting cost when an insured loss delays the project.

Where the draw inspection fits.

The inspection documents what exists on the site, and the policy is what makes that documented value recoverable after a loss. The two belong together in the file: a dry-in inspection that photographed the roof, windows and wrap is also the record of what was insured on that date. Lenders confirm the certificate of insurance, the coverage amount against the completed value, the mortgagee clause and the policy term before each draw, and extend the policy when the schedule slips past its expiration. How are stored materials verified? covers the materials side.

Why it matters for lenders.

A construction loan is secured by a building that does not yet exist, and until it does the lender's collateral is exposed to weather, fire and theft every day. Supervisory guidance on construction and land development lending lists adequate insurance among the documentation a lender obtains and monitors, and an expired policy at the wrong moment turns a routine loss into an unsecured balance. The coverage amount has to keep pace with the work in place; a policy written for the land and the slab does not cover a framed house.

How RAZE handles it.

RAZE documents the work and materials in place at each visit, which is the record a claim rests on. Insurance requirements and their tracking stay with the lender's loan administration.