Builders Risk Insurance - What It Covers, What It Costs, and When You Need It

What Is Builders Risk Insurance?

Builders risk insurance is a temporary property policy that covers a building during the construction phase. It protects against physical damage to the structure, the materials on site, materials in transit to the site, and in many cases temporary structures like scaffolding and construction fencing.

This is not a permanent policy. It starts when construction begins and ends when the building receives its certificate of occupancy, the owner takes possession, or the policy term expires - whichever comes first. Most policies are written for 6, 12, or 18 months depending on the project timeline.

Builders risk can be purchased by the property owner, the general contractor, or the lender. Who buys it depends on what the construction contract says. On most commercial projects, the contract specifies which party is responsible for carrying the policy and who gets named as an insured.

The key thing to understand: builders risk covers the building and materials. It does not cover your liability if someone gets hurt on site (that is your general liability), and it does not cover your tools and equipment (that is inland marine). Builders risk is strictly about protecting the value of the construction work itself.

Who Needs Builders Risk?

General contractors on new construction projects. If you are building a structure from the ground up - commercial, residential, or industrial - the project needs builders risk. On public works and bonded projects, your surety may want to see builders risk in place before issuing performance bonds on certain jobs. It is part of the overall project insurance program.

Property owners and developers. If you own the dirt and you are paying for the building, you have the most to lose if a fire or windstorm damages the structure mid-construction. Many developers carry their own builders risk policy and name the GC and major subcontractors as additional insureds.

Lenders. Construction lenders almost always require builders risk as a condition of the construction loan. They are funding the project and they need to know the collateral is protected. If you are financing construction, expect your lender to require proof of builders risk before the first draw.

Subcontractors. Subs typically do not buy their own builders risk - the GC's or owner's policy usually covers the full project. But check your subcontract. Some sub agreements require the sub to carry their own builders risk for their scope of work, especially on larger projects.

Homeowners doing major renovations. If you are spending $50,000 or more on a renovation that significantly alters the structure of your home, your standard homeowners policy may not cover the work in progress. A standalone builders risk policy is the safer play for any substantial renovation project.

What Builders Risk Covers (and What It Does Not)

What It Covers

• The structure under construction. The building itself, including foundations, framing, roofing, and all installed components from groundbreaking through completion.
• Building materials on site. Lumber, steel, concrete, drywall, fixtures, and other materials stored at the job site waiting to be installed.
• Materials in transit. Materials being shipped to the job site are covered while in transit - important when you have expensive materials coming from suppliers or fabricators.
• Temporary structures. Scaffolding, construction fencing, temporary office trailers, and similar structures on the project site.
• Soft costs. Some policies include coverage for architect and engineering fees, permit costs, loan interest, and other indirect costs you incur if the project is delayed by a covered loss. Soft cost coverage is not automatic on every policy - it is typically added as an endorsement, and it is worth adding on larger projects where delay costs add up fast.

What It Does Not Cover

• Faulty workmanship. If a subcontractor installs something incorrectly, fixing the defective work itself is not a builders risk claim. However, if faulty workmanship causes resulting damage to other parts of the structure (a bad plumbing install causes water damage to finished drywall), that resulting damage may be covered depending on the policy form.
• Employee tools and equipment. Workers' personal tools and contractor-owned equipment like excavators, generators, and power tools are not covered under builders risk. That exposure belongs on your inland marine policy.
• Bodily injury and liability. If someone gets hurt on the job site, that is a general liability or workers compensation claim - not builders risk.
• Earthquake and flood. Most standard builders risk policies exclude earthquake and flood damage. Both can be added by endorsement in most markets, but they come with additional premium and higher deductibles - especially in high-risk zones.
• Existing structures. If you are renovating an existing building, the original structure is typically covered by the owner's permanent property policy. Builders risk covers the new construction work and materials being added. Some policies can be written to include the existing structure - ask your agent about the right setup.

How Much Does Builders Risk Insurance Cost?

Builders risk premiums typically run between 1% and 4% of the total construction value. That is a wide range, and where your project falls depends on several factors.

A straightforward $500,000 residential project with masonry construction in a low-risk area might cost $5,000 to $10,000 for a 12-month policy. A $5 million commercial build in a coastal zone or wildfire-prone area could run $50,000 to $200,000 depending on the risk profile.

Here is what drives the premium:

• Total project value. The higher the construction cost, the higher the premium. Builders risk is rated as a percentage of the total insured value.
• Construction type. Frame construction costs more to insure than masonry or steel. Wood-frame buildings are more susceptible to fire, which is the number one peril on construction sites.
• Location. Coastal areas (hurricane and flood exposure), wildfire zones, and urban sites with higher theft risk all push premiums up. A project in downtown Miami costs more to insure than the same project in suburban Kansas City.
• Project duration. Longer projects mean more time the structure is exposed to risk. A 6-month policy costs less than an 18-month policy for the same project value.
• Deductible. Higher deductibles lower the premium. On larger commercial projects, a $10,000 or $25,000 deductible can meaningfully reduce the cost.
• Additional coverages. Soft cost coverage, transit coverage, debris removal, and pollutant cleanup endorsements all add to the base premium but are often worth the additional cost on projects where delays or environmental issues could create significant expense.

Builders risk policies can usually be extended if the project runs past the original completion date. Extensions come with additional premium, so factor potential delays into your project budget.

How Grit Places Builders Risk

Builders risk is not a standalone purchase. It is one piece of the project insurance program that also includes general liability, workers compensation, inland marine, and on bonded projects, your surety program.

When we place builders risk for a contractor or developer, we look at the whole picture:

• Contract requirements. We review the construction contract to confirm who carries builders risk, what limits are required, and which parties need to be named as insureds.
• Lender requirements. If a construction lender is involved, their requirements dictate minimum coverage, loss payee language, and sometimes specific policy forms. We coordinate directly with the lender to make sure the policy meets their conditions.
• Surety coordination. For general contractors with bonded projects, your surety underwriter may want to see builders risk in place as part of the overall project risk management program. We make sure the builders risk, GL, and bond program all work together.
• Multiple carrier access. We place builders risk with multiple carriers to find competitive pricing. Different carriers have different appetites - some are better on coastal risk, some on large commercial builds, some on renovation projects. We match the carrier to the project.

For contractors who build year-round, a master builders risk program can cover multiple projects under one policy instead of buying separate policies for each job. This is often more cost-effective and eliminates the risk of a gap between projects.

Frequently Asked Questions

Who pays for builders risk insurance - the owner or the contractor?

It depends on the construction contract. On many projects, the property owner purchases builders risk and names the general contractor as an insured. On some projects, the GC is required to provide it. Read your contract before assuming coverage exists. If the contract is silent on builders risk, the party with the most financial exposure to a construction loss - usually the owner - should carry it.

Does builders risk cover subcontractor work?

Typically yes. If a subcontractor's completed work is damaged by a covered peril like fire, wind, or theft, the builders risk policy covers the cost to repair or replace that work. But builders risk does not cover faulty workmanship itself. If a sub installs something incorrectly, fixing the defective work is a general liability exposure, not a builders risk claim. The resulting damage to other work caused by the defect may be covered depending on the policy form.

How long does a builders risk policy last?

A builders risk policy is written for the expected construction period - commonly 6, 12, or 18 months. If the project runs longer than expected, the policy can usually be extended for an additional premium. Coverage ends when the building receives its certificate of occupancy, the owner takes possession, or the policy term expires - whichever comes first.

Does homeowners insurance cover a renovation?

Standard homeowners insurance may cover minor renovations, but major projects that cost $50,000 or more and significantly alter the structure typically exceed what a homeowners policy will cover. The materials on site, the work in progress, and the increased property value during construction create gaps that homeowners insurance was not designed to fill. A standalone builders risk policy is the safer option for any substantial renovation project.

Get Your Project Covered

Whether you are a contractor, a developer, or a homeowner building from the ground up - Grit places builders risk alongside your full insurance and bonding program. We coordinate the builders risk policy with your GL, workers comp, inland marine, and surety so the whole project program works together from day one.

Call us directly: (801) 505-5500

Or request a quote online.

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