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Commercial Property Insurance is designed to cover completed buildings and structures.  Builders’ Risk Insurance is designed to cover buildings and structures during the course of construction.   But what if your project involves a renovation or putting an addition on an existing building?  There are a few options, and each insurance company has its own idea about the best way to handle it.

One can cover the entire building, both the existing structure and the new work on a Commercial Property Policy.  This is often a good approach for an interior renovation.  One caution though – a typical Commercial Property Policy will exclude theft of building materials that are not attached to the building.  In choosing this option, care must be taken to add back this coverage.  It’s also important that the policy’s building limit be increased to include the value of the improvements being made.

Another option is to write the entire project on a Builders’ Risk Policy.  Builders’ Risk typically gives broader coverage for buildings under construction.  It may include coverage for items commonly excluded under Property Policies, such as foundations and earthwork.  The problem with this approach is that a Builders’ Risk Policy excludes the existing structure.  Some insurance companies will add coverage for the existing structure by endorsement, but will usually offer coverage on an Actual Cash Value basis.  Building coverage on a Commercial Property Policy is usually offered at Replacement Cost.

The third option is to write the existing building on a Commercial Property Policy and to insure the new work on a Builders’ Risk Policy.  This approach works well when it is easy to distinguish between the two – adding a second floor or another wing to a building, for example.  It’s a good idea to write both policies with the same insurance company, though.  This will reduce disputes at claim time and generally make for a smoother claims adjusting process.

There are several options to insuring a building that is being added onto or renovated.  Be sure to discuss the details of your project with your insurance advisor to come up with the solution that makes the most sense for your project.