Protecting Work in Progress
Builder's risk insurance covers the structure you're building while construction is underway. Fire, theft, vandalism, storm damage, and other covered events are all protected from groundbreaking through completion.
This is different from general liability, which covers third-party claims. Builder's risk is first-party property coverage for the project itself.
Who Carries the Policy
Construction contracts typically specify whether the owner or the general contractor is responsible for builder's risk coverage. Read this section carefully before signing.
On some projects, the policy is purchased jointly or the owner provides coverage that names the contractor. Know who's responsible and verify that proper coverage is actually in place before breaking ground.
What Builder's Risk Covers
The Structure
Everything being built gets covered. Foundations, framing, roofing, finishes, and all the materials that become part of the building.
Building Materials
Lumber stacked on site. Steel being fabricated. Fixtures awaiting installation. Materials in transit from the supplier. Coverage extends to the stuff that will become part of the building.
Temporary Structures
Scaffolding, temporary fencing, construction trailers, and temporary utilities. All the supporting infrastructure of an active job site.
Installed Equipment
HVAC systems, electrical panels, plumbing fixtures, and other equipment being permanently installed in the structure.
Soft Costs (Optional)
With the right endorsement, you can cover additional expenses that pile up when covered losses cause project delays. Extended loan interest, additional permit fees, extended professional fees, and extra taxes and insurance during the delay period.
Soft cost coverage isn't standard, but it's worth considering on projects where delays are particularly costly.
Common Exclusions
| Exclusion | Notes | |-----------|-------| | Employee theft | Can sometimes be added | | Faulty workmanship | The cost to redo your own bad work | | Normal wear and tear | Expected deterioration | | Earthquake | Requires separate coverage | | Flood | Requires separate flood policy | | Mechanical breakdown | Equipment breakdown coverage available |
The faulty workmanship exclusion trips people up. If your crew installs windows incorrectly and they leak, builder's risk doesn't pay to redo the window installation. But it may cover damage that the leaking windows cause to other work.
How Coverage Limits Work
Builder's risk policies are written for the completed value of the project. Even though the building is only worth a fraction of that value during early construction, the policy limit reflects what it will be worth when finished.
If you're building a $500,000 home, the policy limit is $500,000. In month two, there might only be $80,000 of value at risk. By month ten, you're protecting $450,000. The policy covers actual replacement cost at the time of loss.
Pricing Factors
Premiums depend on total project value, which forms the rate base. Construction type matters since fire-resistive buildings cost less to insure than wood frame. Location factors in, including fire response times and area crime rates. Longer projects cost more than shorter ones. Better security and fire protection reduce premiums. Higher deductibles lower the annual cost.
Typical rates run between $3 and $10 per $1,000 of completed value. A $1 million project might cost $3,000 to $10,000 to insure, depending on specifics.
When Coverage Starts and Ends
Coverage begins when materials arrive on site or when construction work starts, whichever happens first.
Coverage ends when the project is completed and the owner accepts it, when the building becomes occupied, when your policy expires, or when permanent property insurance kicks in. Whichever happens first terminates the builder's risk coverage.
On longer projects, policies may need to be renewed before the originally expected completion date.
Real-World Scenarios
Scenario 1: Fire During Framing
An electrical short sparks a fire that destroys the partially completed structure. Builder's risk covers the cost to demolish what's left and rebuild, including all the materials that were already installed.
Scenario 2: Material Theft
Over a weekend, thieves strip the job site of copper wiring, HVAC equipment, and appliances. Covered, assuming the policy includes theft coverage, which most do.
Scenario 3: Storm Damage
A severe windstorm rips off the temporary roof covering before the permanent roof is installed. Rain damages the interior framing and drywall. Covered.
Scenario 4: Defective Workmanship
The HVAC subcontractor installed the system incorrectly, and it doesn't function. Not covered. The policy doesn't pay to fix your own mistakes, only damage caused by covered perils.
Single Project vs. Blanket Policies
For contractors who build occasionally, single-project policies make sense. You buy coverage for each job as needed.
If you're running multiple projects continuously, a blanket builder's risk policy covers all your jobs under one policy. It simplifies administration and often provides better rates per project.
Common Questions
Can I get builder's risk for a renovation?
Yes, but it's more complicated. The policy needs to distinguish between the existing structure, which should be covered by the owner's property insurance, and the new work being added. Renovation coverage requires careful coordination.
What if the owner already has property insurance?
Standard property insurance typically excludes construction activity. Builder's risk is specifically designed for projects in progress. The two policies serve different purposes.
Who gets named on the policy?
Typically the property owner and general contractor are both named insureds. Subcontractors may be added or may have coverage extended to them automatically, depending on policy language.