Builder’s risk insurance is a specialized type of property insurance that protects buildings and structures during construction or renovation. It safeguards homeowners, contractors and developers from risks that can delay timelines, cause financial loss and lead to costly repairs. Though similar to other types of construction coverage, it offers specific protections tailored to projects at various stages of development.
What Is Builder's Risk Insurance?
Updated: November 28, 2024
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Builder’s Risk Insurance Definition
Builder’s risk insurance is temporary property insurance that protects a building or structure under construction from risks like theft, vandalism and weather damage. Typically purchased by property owners or contractors, it remains in effect until the project is completed or the property is ready for occupancy. Builder's insurance coverage applies during the vulnerable construction phases when standard property policies may not.
A builder’s risk insurance policy covers property damage, including repair costs, labor and sometimes lost revenue due to construction delays. Unlike general liability insurance, which covers third-party injuries or property damage, builder’s risk insurance focuses on protecting the physical project.
Typically, builder’s risk insurance ends when the project is finished. At that point, the property owner or contractor may need to secure other insurance for long-term coverage.
What Does Builder’s Risk Insurance Cover?
Here’s what a builder's risk insurance policy typically includes:
Fire damage
Builder's risk insurance covers the costs of fire damage, from structural repairs to replacement of destroyed materials. Coverage also often extends to damage caused by smoke or firefighting activities.
Theft of materials
This policy includes reimbursement for stolen materials and often applies whether the materials are on-site or in transit.
Vandalism
A builder’s risk insurance policy covers damage from vandalism, typically to the structure and materials.
Weather-related damage (excluding floods and earthquakes)
Unpredictable weather, including windstorms and hail, can severely impact construction sites. Construction insurance coverage under a builder’s risk policy often includes protection against certain weather-related damage. Although floods and earthquakes are usually excluded, coverage can be customized to include certain natural disasters.
Debris removal
It covers the expenses of removing debris, allowing projects to proceed without major delays.
What Does Builder’s Risk Insurance Not Cover?
Here are the common exclusions of builder’s risk insurance:
Earthquakes and floods
Standard builder's risk policies typically exclude damage from earthquakes and floods. Builders can purchase additional flood or earthquake coverage endorsements if their projects are in high-risk zones.
Normal wear and tear
Damage resulting from normal wear and tear of materials, tools and equipment is generally not covered.
Employee theft
Builder’s risk insurance doesn’t cover theft committed by the contractor’s own employees. For protection, contractors might consider fidelity bonds or separate employee theft policies.
Who Needs Builder’s Risk Insurance?
Builder’s risk insurance is crucial for anyone involved in a construction project. Here are the primary individuals or entities who need this coverage:
Homeowners engaging in major renovations
Homeowners undertaking large renovation projects can benefit from homeowner builder's risk insurance. It protects their home-in-progress against risks that standard homeowner policies may not address.
General contractors
Contractors are often responsible for securing builder’s risk insurance to protect the project and materials.
Project developers
Developers investing in large-scale construction projects can protect their investments with builder's risk insurance coverage. It's especially useful for high-value projects or those with multiple phases.
Architects
Architects responsible for construction oversight benefit from builder's risk policy insurance, as it protects against potential project delays or damage. This type of coverage can minimize legal exposure for architects, especially if their designs are in the early development stages.
Commercial property owners
Property owners building new commercial structures can use commercial builder's insurance to secure the project’s future income potential. Commercial builder's insurance can also offer protection for temporary structures, scaffolding and signage.
Financial Institutions
Banks or other financiers involved in funding construction projects may require builder's risk endorsement as a condition for lending.
How Much Does Builder’s Risk Insurance Cost?
The cost of builder's risk insurance varies widely by project scope, materials used and geographic location. A larger project or one using specialized materials may see higher premiums to account for the increased value at risk. Projects in areas prone to severe weather or natural disasters may require endorsements, raising the cost.
Coverage options also affect the cost. Policies can be expanded to cover risks like flood or earthquake damage, or to include coverage for temporary structures, scaffolding and debris removal. Each additional protection increases the premium but offers more comprehensive coverage. Some insurers offer discounts based on safety measures in place, such as enhanced site security, frequent inspections or adherence to strict building codes.
How to Find the Right Builder’s Risk Insurance Policy
Here are essential steps to help you find the right builder’s risk insurance policy for your needs:
- 1
Consult an agent
An experienced agent can help you understand all the coverage options and exclusions, and they can help you tailor the builder's policy to your project.
- 2
Assess project-specific needs
Consider the project’s location, materials and budget to determine which builder's risk endorsements are necessary. Different types of projects require unique coverage add-ons that protect against location-specific risks.
- 3
Review the policy’s term limits
Builder’s risk policies are temporary, typically lasting three to 12 months. Ensure the policy duration matches your project timeline and inquire about renewal options if delays occur.
- 4
Request multiple quotes
Comparing quotes from top small business insurers can help identify the most comprehensive yet affordable option.
- 5
Check for exclusions
Some builders' risk policies exclude coverage for risks like floods or earthquakes. If your project requires additional protection, request policy endorsements.
- 6
Look into deductibles
Higher deductibles can lower premiums, but make sure they’re manageable in case of a claim.
FAQ: Builder's Risk Insurance
What is builder's risk insurance?
Builder's risk insurance is temporary property insurance that protects a building under construction from risks like fire and theft.
What does builder's risk insurance cover?
Typically, builder's risk insurance coverage includes damage from fire, theft, vandalism, weather and debris removal, but it excludes certain natural disasters like floods and earthquakes.
Who is responsible for builder's risk insurance?
The property owner or contractor usually purchases it, depending on contract terms and project scope.
Do I need builder's risk insurance?
If you're building or renovating a structure, builder's risk insurance provides essential coverage against construction risks.
Does builder's risk insurance cover theft?
Yes, most policies cover theft of materials and equipment on-site.
About Mark Fitzpatrick
Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.
Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.