Course of construction insurance State Farm offers—commonly referred to as builder’s risk insurance—protects structures, materials, and equipment while a home or commercial building is being constructed or renovated. Because a standard homeowners or landlord policy explicitly excludes major structural work or unattached construction materials, property owners and contractors rely on specialized coverage to handle risks like fire, vandalism, theft, and severe weather during the building phase.
What Course of Construction Insurance Covers
A course of construction policy acts as specialized property insurance designed specifically for the temporary, high-risk period of a build. State Farm typically issues this protection either through a dedicated builder’s risk policy or as a specialized endorsement added to an existing property policy, depending on the scope of the project.
Coverage generally applies to the physical structure being erected, along with the raw building materials, fixtures, machinery, and supplies stored at the construction site. Standard policies cover property damage caused by common risks such as fire, lightning, high winds, hail, explosion, theft of installed materials, and malicious mischief. If a fire breaks out halfway through framing a new home, the policy pays to repair or rebuild the damaged structure and replace lost framing lumber.
Many policies also extend limited protection to materials stored off-site or while in transit to the project location, though these extensions often carry specific sub-limits. It is critical to note that builder’s risk insurance focuses on direct physical loss to the property; it does not standardly cover general liability for bodily injury, contractor tools, or design defects.
Who Needs a Policy During Construction
Determining who must purchase the course of construction policy usually comes down to the terms of the building contract and local lender requirements. Both the property owner and the general contractor have a financial interest in the project, making proper policy structuring essential.
Property owners building a custom single-family home or undertaking a major home addition typically purchase the policy themselves or require their contractor to hold one. Mortgage lenders funding the construction loan almost universally mandate a active builder’s risk policy naming them as a loss payee before releasing construction draws.
General contractors managing commercial projects or custom home builds often carry master builder’s risk policies to cover all their active job sites. Even when the contractor carries the primary insurance, property owners should ensure their name and interest are explicitly listed on the policy document to protect their personal equity in the project.
Standard Coverage Exclusions and Add-Ons
While course of construction insurance provides wide coverage, standard policies do not cover every possible scenario. Understanding these common exclusions prevents costly gaps during a build.
Standard policies typically exclude damage resulting from earthquakes, floods, mudslides, normal wear and tear, faulty design, poor workmanship, and defective materials. Subcontractor theft of uninstalled tools or equipment is also generally excluded, as contractor tools require a separate commercial inland marine policy.
Property owners and builders can often purchase optional endorsements or riders to customize their coverage. Common policy extensions include:
- Soft costs coverage: Pays for financial losses caused by construction delays, such as extended loan interest, property taxes, architectural fees, and permit fees.
- Debris removal: Pays the costs to clear damaged property from the job site following an insured event.
- Scaffolding and temporary structures: Covers temporary fencing, site trailers, and scaffolding damaged by covered perils.
- Sewer and drain backup: Protects against water damage resulting from backed-up drainage systems during site development.
Determining Coverage Limits and Policy Costs
The cost of course of construction insurance with State Farm depends heavily on the total completed value of the project, the structural materials used, the construction timeline, and local geographic risks. Premiums generally range between 1% and 4% of the total construction cost.
To set the appropriate coverage limit, you must calculate the full anticipated cost of the completed structure, excluding the value of the underlying land. If a home will cost $500,000 to construct from the ground up, the policy limit should reflect that full $500,000 amount, not just the initial phase costs. Underestimating the final completed value can result in coinsurance penalties, leaving the policyholder responsible for a proportion of any partial loss.
Key factors that influence overall policy pricing include:
- Total project valuation and square footage
- Expected duration of the construction process
- Building materials used, such as wood frame versus concrete or steel
- Project site location and vulnerability to windstorm, wildfire, or theft
- Selected deductible levels and optional soft cost endorsements
How to Get a Policy and Keep It Valid
Obtaining course of construction coverage requires providing detailed project documentation to the insurance agent before work begins on the site. Insurers require clear visibility into the project’s scope, timeline, and security measures.
To secure a policy, applicants typically must submit the construction contract, architectural plans, estimated project budget, target completion date, and details regarding the general contractor’s licensing and experience. Insurers may also require safety protocols on the job site, such as security fencing, lighting, or motion-sensor cameras, particularly in areas prone to material theft.
Maintaining valid coverage requires strict adherence to policy conditions throughout the build. The policy must be bound before or at the moment ground is broken or major structural work begins. If a project runs past its anticipated completion date, the policyholder must request a policy extension before the original expiration date passes, as expired policies leave the site completely uninsured.
What Happens When Construction Is Complete
Course of construction insurance is strict, temporary coverage designed solely for the building phase. It automatically terminates once the structure is fully completed, occupied, or accepted by the owner.
Transitioning to permanent insurance requires careful timing. The moment a new home is completed or occupied, the builder’s risk policy must be replaced with a standard homeowners policy or commercial property policy. Allowing a completed building to sit under a builder’s risk policy after occupancy can invalidate coverage, leaving the owner exposed to uncompensated losses. Property owners should contact their agent at least 30 days prior to project completion to seamlessly convert the temporary construction coverage into a permanent policy structure.
