Most contractors I know look at builders’ risk insurance as simple and even mundane. However, many of the builders risk policies that I review have coverage holes that you can drive an extended-cab pickup truck through.

To start at the beginning; builders’ risk insurance policies cover buildings during construction, renovation or repair. Insurance coverage is provided on the structure and materials used in construction. In most cases, materials are covered while in transit, at temporary storage locations, and while stored at the job site.

Here are some of the issues to consider:

• Amount Of Coverage: Most policies require that you include 100 percent of the expected construction cost as the amount of insurance. Coinsurance penalties may apply if you fail to meet this requirement. Site preparation costs are usually not included in the amount of coverage. Work with your insurance advisor to determine what costs to include in selecting the amount of builders’ risk coverage.

• You May Already Have Coverage: Your property insurance policy may include coverage for newly acquired and newly constructed buildings. The amount of automatic insurance may be relatively small. However, it may be broad enough to eliminate the need for an additional insurance policy. Review your policy for the perils included in coverage.

• Deductibles: Higher deductibles can reduce your insurance costs. Consider $5,000, $10,000, or more. I always wonder at $25 million construction projects with $1,000 insurance deductibles.

• Perils Covered: What causes of loss are included in the policy? The broadest peril policies are called “special perils.” Also known as “all-risk,” they include damage by any cause, except what’s excluded. Exclusions include: earthquake, flood, intentional damage by you, mold, terrorism, and damage by insects or vermin, for example. Named peril policies list the events that are covered – fire, lightning, wind, explosion, riot, smoke, hail, vehicles, aircraft and vandalism, for example.

• Consider Earthquake Coverage: Many contractors in the northeast dismiss the possibility of an earthquake damaging a building here. It’s also true that damage caused by earthquake is almost always excluded from basic builders risk policies. Aside from domestic terrorism, earthquake presents the most widely uninsured catastrophic loss exposure.

I think it’s a mistake to assume it can’t happen in New England. On Nov. 18, 1755 an earthquake struck Massachusetts that was felt from Nova Scotia to the Chesapeake Bay. Hundreds of chimneys in Boston were destroyed. Boat passengers in Boston Harbor thought their vessels had run aground. Historians and scientists put the magnitude of the quake at 6.2 on the Richter scale. A similar event today could be devastating.

Have your agent quote earthquake coverage. Then decide the value of the coverage to you.

• Consider Coverage for Flood: A painful lesson for many Hurricane Katrina victims is that the wind damage caused by a hurricane is covered by property insurance – damage by flood and storm surge is not.

Review the exposure of your site to damage by flood. Evaluate historical flooding in the area. Neighbors can provide some information. Your insurance agent can also help with a review of flood maps. Ask for quotes and consider the coverage.

• Other Exclusions: In addition to the flood and earthquake exclusions mentioned above, most policies will exclude damage caused by defect in construction, defect in design, mold, pollution, settling, cracking, shrinking, bulging or expansion. Learn what other policy limitations exist.

• Theft of Building Materials: Some builders’ risk insurance policies exclude theft of building materials stored on site. Some require gated storage areas. Read your policy.

• Subcontractors’ Work: Is the work of subcontractors (while in process) included in the coverage? Many policies exclude property owned by subs or work by subs prior to completion of their part of the work.

• Collapse During Construction: Some policies exclude damage caused in the collapse of the building. Review your insurance policy.

• Business Income: Coverage can be included for loss of income in the event that a fire or other insured event prevents you from completing construction on time. Imagine a new hotel destroyed two months before completion. The losses in revenue, while the building is rebuilt, could be substantial.

The failure to provide business income coverage inside the builders risk insurance program is probably the most common error that I see. Work with your insurance advisor to determine the correct amount of loss of business income coverage for your project.

• Liability Insurance: Builders’ risk insurance does not include coverage for bodily injury or damage to property of others. Look to your general liability insurance for protection.

• Get Quotes: Your insurance agent or broker can get you quotes from several insurers. Specialty programs for builders’ risk insurance may offer a better price and coverage.

• Occupancy: Most builders’ risk insurance coverage terminates at occupancy. Coverage ends automatically. Be sure you let your agent know ahead of time that you are moving in. Under some policies, coverage will terminate if the building is ready for occupancy, even if you have not moved in. Talk with your advisor.

• Soft Costs: After a building under construction is destroyed, there may be architects’ fees, attorney’s bills, planning board reviews, and the like before reconstruction can begin. Many policies require soft-costs to be a separate limit of coverage.

• The Value of Your Agent: In my work for insurance buyers I deal with many different insurance agents. Some are good, some are bad. Like most insurance issues, builders risk insurance can be complicated. My last piece of advice is to get competent advice from your insurance agent. Having an experienced agent whom you trust is, perhaps, the most important part of the insurance transaction.