Builders Risk Insurance Insurance — Your Questions Answered
Quick Answer
Common questions about Builders Risk Insurance — what it covers, costs, exclusions, and requirements explained by licensed insurance agents.
Builders risk insurance (also called construction insurance) covers buildings and structures under construction from damage due to fire, vandalism, weather, and other covered perils during the construction period — protecting contractors, property owners, and lenders.
Quick Summary
Builders risk insurance covers property that is under construction or renovation — protecting against loss or damage from fire, wind, theft, vandalism, and other perils during the construction period. It covers the structure being built plus on-site materials, supplies, and temporary structures. Required by lenders for construction loans. Owners, general contractors, and subcontractors all have insurable interests. Premiums typically run 1–4% of the project's total hard cost annually, with a policy term matching the construction schedule.
What does builders risk insurance cover?
Builders risk insurance covers the building under construction — including the structure, installed materials and fixtures, temporary structures (scaffolding, construction trailers), and materials stored on-site and sometimes in transit to the site. Covered perils typically include: fire, lightning, wind, hail, vandalism, theft of materials, and collapse. Extended coverage options include: soft costs (architectural fees, permits, financing costs if a loss delays the project), delay in opening/rental income loss, and earthquake/flood (requires endorsement). Importantly, builders risk does NOT cover: contractor's tools and equipment (requires separate inland marine), faulty workmanship, and existing structures (requires separate coverage).
Who should purchase builders risk insurance?
Builders risk coverage can be purchased by: (1) Property owner / project owner — most common; the owner typically purchases and names the GC and lender as additional insureds; (2) General contractor — may purchase if the owner does not, or if the contract requires it; (3) Construction lender — lenders for construction loans require builders risk as a condition of the loan. The AIA A201 general conditions specify insurance requirements for owners and contractors. The key is that there is only one builders risk policy per project — duplication results in disputes at claim time. The party purchasing should be clearly established in the contract.
How long does builders risk coverage last?
Builders risk policies are written for a defined period — typically the scheduled construction duration plus a buffer. Standard terms are 6, 12, or 18 months. If the project extends beyond the policy period, a renewal or extension must be obtained before expiration — coverage lapses are dangerous gaps that may not be noticed until a loss occurs. The policy automatically terminates upon the earliest of: (1) project completion and occupancy; (2) policy expiration date; (3) abandonment of the project; or (4) 60 days after construction is substantially complete (policy-specific).
What is soft costs coverage in builders risk?
Soft costs coverage pays for increased construction loan interest, permit re-fees, architect and engineering re-fees, and other project development expenses that increase because of a covered loss that delays the project. For example, if a fire destroys a partially completed building requiring a 6-month delay, the soft costs coverage would pay the additional construction loan interest during those 6 months. For projects with significant financing costs or pre-opening revenue expectations, soft costs endorsements are critically important. Typical soft costs coverage is 10–15% of the hard construction cost.
Does builders risk cover theft of materials?
Yes — theft of building materials on site is a covered peril under most builders risk policies. However, there are important limitations: (1) Tools and equipment belonging to the contractor are NOT covered (requires inland marine/contractor's equipment coverage); (2) Some policies have sublimits for metal theft (copper wire, HVAC components); (3) Materials stored away from the site may have limited or no coverage; (4) Coverage for materials in transit varies by policy. Security measures — fencing, lighting, cameras, alarm systems — both reduce theft incidents and can qualify for premium credits.
What projects need builders risk insurance?
Builders risk is appropriate for: new construction of commercial or residential buildings, major renovation projects (generally where the project value exceeds $500,000 or where existing structure coverage is inadequate for the scope of work), tenant improvements in commercial space, infrastructure projects (bridges, utilities — requires specialized engineering programs), and residential construction for sale (spec homes). Minor renovation projects may be covered under the owner's existing property policy or contractor's inland marine, but significant construction activity typically warrants dedicated builders risk coverage.