Property and Casualty Insurance Practice Exam

Under which condition does coverage under Builders Risk cease?

1. Completion of construction within 60 days

2. Occupation of the building

3. Securing a loan for the project

4. All materials delivered to the site

The correct answer is: Occupation of the building

Coverage under Builders Risk ceases when the building is occupied because this signifies that construction is effectively reaching its conclusion and the property is no longer at risk for construction-related perils in the same way it would be during an active building phase. Builders Risk insurance is specifically designed to cover buildings under construction and their materials from risks such as theft, fire, and vandalism until they are completed and ready for use. Once the property is occupied, it generally transitions to a different type of insurance, such as a homeowner's or commercial property policy, which offers different kinds of protections that reflect the change in how the property is used and the associated risks. In contrast, completion of construction within a specific timeframe, securing a loan, or having all materials delivered do not necessarily indicate that coverage should end, as these conditions may not correlate directly with the project being fully occupied or ready for use. The focus on occupancy as the condition for ceasing coverage aptly reflects the operational and insurance realities involved in property development and risk management.