Builders risk insurance is a temporary property policy that covers a building under construction, along with the materials and equipment going into it, against damage from events like fire, theft, storms, and vandalism.1The Hartford. Builder’s Risk Insurance Coverages and Exclusions Premiums generally run between 1% and 4% of the total completed project value, and coverage stays in force only until the building is finished or occupied. If you own the project, are financing it, or are the general contractor responsible for it under the construction contract, you need this policy. Standard homeowners and commercial property insurance won’t fill the gap.
What the Policy Covers
At its core, a builders risk policy pays for direct physical damage to the structure being built. Covered perils typically include fire, lightning, windstorms, hail, explosions, theft, and vandalism.1The Hartford. Builder’s Risk Insurance Coverages and Exclusions Coverage extends beyond the structure itself to the building materials, fixtures, machinery, and equipment that will become part of the finished project.
Materials aren’t only covered once they’re installed. Items stored on the job site, sitting at a temporary off-site location, or in transit to the project are generally protected. Temporary structures used during construction, such as scaffolding and fencing, are usually covered as well, though many insurers cap these at a sublimit rather than the full policy amount. If your project depends heavily on expensive temporary work, check whether the sublimit is enough.
Named Peril vs. All-Risk
Two structures of coverage exist, and the difference matters when you file a claim. A named peril policy covers only the specific events listed in the policy. If damage comes from a cause not on that list, the claim fails. An all-risk policy, sometimes called open peril, covers any physical loss unless the policy specifically excludes it. All-risk coverage is broader and more expensive, and it shifts the burden: you show damage occurred, and the insurer has to point to an exclusion to deny the claim.
Your policy’s declarations page will specify which form applies. If it isn’t clear, ask before construction starts. Finding out you have named peril coverage after a pipe bursts is an expensive surprise.
Soft Costs and Delay Losses
Physical damage to a half-built structure is only part of the hit. When a covered loss forces construction to stop, expenses keep piling up while no work happens. Soft cost coverage pays for these delay-related expenses: interest on construction loans, additional permit and re-inspection fees, revised architectural and engineering plans, extended insurance premiums, real estate taxes accruing during the delay, and advertising to announce a new opening date.2Amwins. Builder’s Risk Insurance: What Costs Are Covered in the Event of a Loss?
Some policies extend to lost rental income or business interruption when a covered loss delays the building’s opening. Lost rental income covers revenue from leases that would have started on time, while business interruption covers operating profit and continuing fixed costs during the delay.2Amwins. Builder’s Risk Insurance: What Costs Are Covered in the Event of a Loss? Soft cost coverage typically requires a separate endorsement and often carries a time-based deductible, meaning costs incurred during the first 30 or 60 days of a delay aren’t covered.1The Hartford. Builder’s Risk Insurance Coverages and Exclusions On a large commercial project, a two-month delay can mean six figures in carrying costs, and the endorsement pays for itself quickly.
Who Buys the Policy
Whether the property owner or the general contractor purchases builders risk depends on the construction contract. The contract usually specifies who is responsible, and that party becomes the named insured with full coverage rights, including soft costs and rental income protection. The other party can be added as an additional insured, but that status is narrower. Additional insureds are typically covered only to the extent of their financial interest in the physical property, not for soft costs or delay losses.
Construction lenders almost always require a builders risk policy as a condition of the loan. The lender is listed as a loss payee, meaning insurance proceeds go through them first so they can confirm the money is used for repairs. If you’re financing a build and don’t have the policy in place before closing, the loan won’t fund.
Subcontractors generally don’t need their own builders risk coverage. The project-wide policy covers the work they install once it becomes part of the structure. They do still need commercial general liability insurance, which covers a different risk entirely.
What Projects Qualify
Builders risk policies cover a wide range of projects: single-family homes, multi-unit housing, retail and office buildings, industrial facilities, and mixed-use developments. Insurers underwrite each project based on structural materials, total value, and construction methods. Wood-frame buildings typically carry higher premiums because of fire risk; steel and concrete may qualify for better rates.
The policy needs to be purchased before construction reaches a certain stage, generally before framing is complete. If the project is too far along, insurers may decline coverage. Modular and prefabricated buildings are eligible, though the policy needs to account for transportation risks between the factory and the job site.
Renovations and the Existing Structure Gap
Builders risk isn’t limited to ground-up construction. Remodels, additions, and gut renovations also qualify. The complication is the pre-existing building. A standard builders risk policy covers the new work being performed, but the existing structure may or may not be included. Some policies write existing structures at actual cash value or impose a sublimit that may not be enough after a serious loss. Making this worse, some standard property policies exclude damage to an existing structure if renovations are underway at the time of the loss.3US Assure. Builders Risk Insurance: It’s Not Just for New Construction The result can be a gap where neither policy fully protects the original building. If you’re renovating, confirm in writing how the existing structure is valued and insured before work begins.
How It Differs From Other Insurance
Confusing builders risk with other coverage is common, and the consequences can be severe.
Standard homeowners or commercial property insurance assumes a finished, occupied building. When a home becomes a construction site, it violates that assumption in several ways. Most property policies suspend coverage for vandalism and water damage if the building is vacant for more than 60 consecutive days. They exclude damage arising from construction activity itself. And they don’t cover uninstalled materials sitting on a job site. Builders risk is designed for unoccupied structures under construction and maintains protection regardless of vacancy.
Commercial general liability insurance protects contractors against claims from third parties, like a passerby injured by falling debris or a neighbor’s property damaged by excavation. It does not cover damage to the building under construction itself. Builders risk is first-party coverage, protecting the building and materials that belong to the policyholder; general liability is third-party coverage for harm done to others. Most projects need both.
What It Costs
Builders risk premiums generally fall between 1% and 4% of the project’s total completed value. A $300,000 residential build might carry a premium of $3,000 to $12,000 for the construction period. Several factors move that number up or down:
- Location. Projects in areas prone to hurricanes, wildfires, or high crime rates cost more to insure.
- Construction type. Wood-frame buildings are more expensive to insure than steel or concrete.
- Project value. Higher total value means a higher premium, though the percentage rate may decrease on large commercial projects.
- Deductible. Deductibles commonly range from $500 to $5,000. A higher deductible lowers the premium but raises your out-of-pocket cost after a loss.
- Coverage type. All-risk policies cost more than named peril policies.
Set the policy limit at the estimated completed value, including labor and materials. Underinsuring to save on premiums backfires. If a total loss occurs on a building insured for less than its completed value, the payout won’t cover reconstruction.
When Coverage Ends
Builders risk is inherently temporary. Policies are issued for a fixed term, commonly six to twelve months. If construction runs long, extensions may be available but aren’t guaranteed. The insurer will want to know why the project is delayed, and an additional premium usually applies.
Coverage can also end automatically inside the policy term. The most common triggers:
- Occupancy. If the building is occupied or put to its intended use, coverage typically ends 60 to 90 days later. For multi-family projects, some forms end coverage when 50% or more of residential units are leased.4US Assure. When Builders Risk Coverage Begins and Ends
- Project completion. Coverage ends 90 days after the project is finished, even if the full policy term hasn’t expired.4US Assure. When Builders Risk Coverage Begins and Ends
- Permanent insurance takes effect. Once a standard property or homeowners policy kicks in, the builders risk policy terminates.4US Assure. When Builders Risk Coverage Begins and Ends
- Ownership transfer. When the owner accepts the completed property and the contractor is paid in full, coverage ends.4US Assure. When Builders Risk Coverage Begins and Ends
- Abandonment. If construction is abandoned with no intent to complete, coverage terminates.
The gap between builders risk ending and permanent property insurance beginning is where people get burned. A certificate of occupancy or final inspection is the natural switching point. Builders risk premiums are typically non-refundable for the remaining term if you cancel early, so time the transition rather than overlap coverage or leave a gap.
Common Exclusions
Every builders risk policy has exclusions, and some catch people off guard.
Defective work, faulty materials, and design errors are universally excluded. Insurers take the position that quality control is the contractor’s job, not a risk they’re underwriting.1The Hartford. Builder’s Risk Insurance Coverages and Exclusions Some policies offer an endorsement covering resulting damage from a defect, like water damage caused by an improperly installed pipe, but they still won’t pay to fix the pipe itself. The consequential damage is covered; the defective work never is.
Flood and earthquake are almost always excluded from the base policy. Flood coverage can often be added through an endorsement rather than requiring an entirely separate policy, and earthquake works similarly in most markets. In high-risk zones, these endorsements add significantly to the premium, but going without them on a coastal or seismically active site is a gamble most lenders won’t allow.
Other standard exclusions include normal wear and deterioration, earth movement (defined broadly enough that even minor soil settlement can be excluded),1The Hartford. Builder’s Risk Insurance Coverages and Exclusions government action such as zoning changes or condemnation, and war, nuclear hazard, and terrorism.
Water damage sits in a gray area. Water intrusion from a burst pipe or failed plumbing is typically covered. Flooding from rising surface water, storm surge, or overflowing bodies of water is not, which is why the flood endorsement exists as a separate add-on.
Your Responsibilities During Construction
Having a policy doesn’t mean you can ignore site conditions and expect the insurer to pay. Builders risk policies include ongoing conditions, sometimes called subjectivities, that function as requirements for coverage. Fail to meet them, and the insurer has grounds to deny a claim.
Common requirements include maintaining site security such as fencing, lighting, and cameras, installing fire prevention measures like sprinklers where required, following local building codes, and securing materials against theft. If negligence contributes to a loss, such as leaving expensive copper piping unsecured overnight in a high-theft area, expect a fight over the claim.
Documentation matters more than most policyholders realize. Records of material deliveries, work progress, and site conditions create the paper trail you’ll need if something goes wrong. Report significant project changes promptly. Switching from wood framing to steel, altering the design, or expanding the scope can push the completed value beyond the policy limit or shift the risk profile the insurer priced.
Filing a Claim
Speed matters. Most builders risk policies impose strict reporting deadlines, and delayed notification is one of the most common reasons claims get reduced or denied. As soon as damage occurs, notify your insurer and document everything: photographs, contractor assessments, police reports if theft or vandalism is involved, and a written timeline of what happened.
The insurer will assign an adjuster to inspect the damage and estimate the payout. Have ready your invoices for materials, proof of expenses, project schedules showing work completed before the loss, and any relevant contracts. Claims that stall almost always stall because the policyholder can’t produce documentation the adjuster needs.
If the claim is approved, payment is based on the coverage limits minus the deductible. When a lender is involved, the check may be issued jointly to the policyholder and the lender, who will release funds as repairs are completed. Disputes over claim amounts are not uncommon, particularly on large projects where the line between covered damage and excluded defective work gets blurry. If you disagree with the adjuster’s valuation, most policies include an appraisal provision that brings in independent evaluators before things escalate to litigation.