What is builders risk insurance and why does it matter?

Construction sites are filled with uncertainty. From theft to fire to weather damage, plenty can go wrong before a building is complete. That’s where builders risk insurance comes in.

Builders risk insurance, sometimes called course of construction insurance, is a specialized type of property coverage. It protects buildings and structures under construction from damage caused by specific risks. These may include fire, wind, vandalism, and even accidental damage from construction activities.

This coverage typically applies to new builds, remodels, and installations. Policies can be customized to reflect the scale, duration, and complexity of a project. Depending on the terms, materials on-site, temporary structures, and certain soft costs may also be included.

Why does it matter?

Because a single uninsured incident can derail a project financially and logistically. For developers, contractors, and property owners, builders risk insurance is a practical safeguard. It keeps construction moving, even when the unexpected happens.

Key events and perils typically covered

Construction projects carry risk from day one. Builders risk insurance helps cover some of the most common and costly events that can threaten timelines and budgets.

Damage from natural elements

Weather-related losses are among the most frequent claims. Many policies cover:

• Fire or lightning strikes
• Windstorms and hail
• Explosions caused by gas lines or construction equipment
• Water damage from rain or burst pipes (excluding flooding unless endorsed)

These events can halt work, damage materials, or even destroy partially completed structures.

Theft and vandalism

Construction sites often lack full-time security. If materials, tools, or equipment are stolen or damaged by vandals, builders risk coverage typically steps in provided those items were scheduled in the policy.

Accidental damage

Some losses aren’t from nature or crime, they’re just part of the work. Accidents during installation or structural collapse due to human error may also be covered.

Temporary structures and materials

Many policies extend to scaffolding, fencing, and construction trailers, as well as materials stored on-site or in transit if they’re meant for the insured project.

Builders risk insurance doesn’t cover everything, but it does protect against a wide range of project-specific risks. Knowing what events are included can help you plan more confidently and recover more quickly if something goes wrong.

What builders risk insurance does not cover

It’s easy to assume builders’ risk insurance covers everything that could go wrong. It doesn’t. Understanding what’s excluded is just as important as knowing what’s protected.

Excluded causes of loss

Certain events are typically not covered under a standard builders risk policy:

• Earthquakes and flooding: Unless specifically added through endorsements, damage from these natural disasters is not included.
• Wear and tear: Gradual deterioration, corrosion, or poor maintenance is excluded.
• Mechanical breakdown: Equipment failure that isn’t the result of an outside force usually doesn’t qualify for reimbursement.

Excluded property

Not everything on-site is automatically covered:

• Contractors’ tools and personal property: Builders risk covers property related to the structure, not personal gear or small tools.
• Vehicles: Any licensed vehicles, even if used on-site, fall outside the scope of this policy.
• Completed structures: Once construction finishes, coverage typically ends. A different policy is required at that point.

Excluded liability

Builders risk insurance doesn’t cover injuries or legal claims:

• Bodily injury or worker accidents: These fall under workers’ compensation or general liability policies.
• Third-party property damage: If your project causes damage to neighboring property, you’ll need separate liability coverage.

Knowing what’s not covered helps avoid surprises when filing a claim. For full protection, it’s smart to review your policy closely and speak with an insurance advisor about potential gaps.

Who needs this coverage and when to buy it

Construction doesn’t start with bricks, it starts with planning. One detail that shouldn’t be skipped: builders risk insurance. If you’re involved in a project under construction, you likely need it.

Who should consider builders risk insurance?

Several roles and entities benefit from this coverage:

• Property owners: If you’re funding the build, you’re on the hook for losses. Builders’ risk can protect your investment before it’s complete.
• Contractors and builders: General contractors often take out policies to protect the structure, materials, and tools tied to the job.
• Developers and investors: Projects backed by investors usually require insurance to avoid financial gaps during construction.
• Lenders: Many banks and financial institutions demand builders risk insurance as a loan condition.
• Architects or engineers (if contractually responsible): In some cases, professionals tied to the design may hold insurable interest.

When should you purchase the policy?

Timing is critical. You can’t buy coverage after something has already gone wrong.

• Before work begins: Ideally, secure the policy once contracts are signed and before materials arrive on-site.
• During planning or permitting: Some choose to activate the policy just before the start date to ensure continuous protection.
• For renovations or additions: Even if the structure already exists, builders’ risk is useful when adding new parts or updating major systems.

Buying builders risk insurance early helps avoid gaps in coverage. If you wait until construction is underway, you risk being unprotected when it matters most.

Policy duration and when coverage begins and ends

Builders risk insurance doesn’t last forever and it’s not meant to. Its value lies in protecting a project during its most vulnerable phase: construction.

When does coverage start?

Coverage typically begins when either of these two events happens:

• The policy’s start date is reached in advance when you purchase the policy.
• Materials arrive on-site and construction begins some policies trigger coverage based on physical activity or delivery.

In either case, make sure you’re insured before any equipment or supplies show up. If a loss happens before coverage is active, the claim won’t be approved.

How long does it last?

Builders risk insurance is usually written for a specific time frame commonly three, six, or twelve months.

That timeframe should match the expected construction schedule. If your project runs long, you may be able to extend the policy with the insurer’s approval. But extensions aren’t guaranteed, and some insurers limit how many times a policy can be extended.

When does coverage end?

Coverage typically ends when one of the following occurs:

• The project is completed and ready for use
• The policy reaches its expiration date
• The owner accepts the work, even if minor tasks remain
• The property becomes occupied or operational

Once any of these milestones is met, builders risk coverage stops even if there’s still some work going on.

To avoid gaps in protection, align your policy’s start and end dates with the actual construction timeline. If the project scope changes, talk to your insurer early to explore your options.

Costs: what influences your builders risk premium?

No two construction projects are exactly alike and that’s why premiums vary. The cost of builders risk insurance depends on several factors tied to the risk and scope of the job.

Project value and scope

The total insured value is a key driver. This includes:

• The cost of labor, materials, and equipment
• Any anticipated soft costs (if covered), like permits or design fees
• The full replacement value not just the amount spent so far

A $2 million commercial build will cost more to insure than a $200,000 home addition. Insurers calculate risk based on the worst-case scenario: a total loss.

Type of construction

The materials and methods used play a role. Wood-frame buildings typically cost more to insure than steel or concrete structures due to higher fire risk. Similarly, projects involving hazardous materials or complex engineering may increase the premium.

Location and exposure

Where the project takes place matters. A build in a hurricane-prone region or high-crime area may carry a higher rate. Local weather history, crime rates, and proximity to fire services all affect pricing.

Duration of the policy

Longer timelines mean more time for something to go wrong. A 12-month policy generally costs more than a 3-month one. However, rushing a schedule just to save on insurance can backfire if delays occur and extensions are needed.

Coverage options and deductibles

The more coverage you add, the more you’ll pay. Including items like materials in transit, temporary structures, or soft costs raises the premium. On the flip side, choosing a higher deductible can help lower the initial cost but may lead to more out-of-pocket expenses in the event of a claim.

Understanding these pricing factors can help you budget more accurately. Before committing to a policy, compare quotes and review coverage limits to make sure the cost matches the protection you actually need.

Builders risk vs general liability: what’s the difference?

Insurance terms can sound alike, but they serve very different purposes. Builders risk and general liability are both common in construction but they cover entirely different risks.

What builders risk covers

Builders risk protecting the project itself. It focuses on property loss or damage during construction. This includes:

• The building under construction
• On-site materials and equipment
• Temporary structures (if included in the policy)

For example, if a windstorm tears through a partially completed building, a builders risk policy may cover repair costs.

What general liability covers

General liability insurance covers people and third-party property. It’s designed to protect your business from lawsuits or claims related to:

• Bodily injuries on the job site (e.g., a visitor trips and gets hurt)
• Damage your crew causes to someone else’s property
• Legal fees if you’re sued for these types of accidents

It does not cover damage to your own construction project or materials.

Why you may need both

These policies complement each other. One protects your investment in the structure; the other protects your business from outside claims. Most builders, contractors, and project owners carry both to reduce exposure.

Think of it this way: builders’ risk covers the “what” being built, and general liability covers the “who” involved in the work. Having both is often the safest approach.

Add-ons and endorsements that might be worth it

Standard builders’ risk policies don’t always cover everything you need. Depending on the project, a few targeted endorsements can fill important gaps.

Common add-ons worth considering

Here are some policy extensions that may be worth adding, especially for more complex builds:

• Soft costs coverageReimburses expenses like permits, legal fees, and loan interest if a covered loss delays the project. This is helpful for builds with tight financing or planned opening dates.
• Equipment breakdownCovers damage to boilers, HVAC systems, and other mechanical components if they fail due to electrical issues or internal problems not external forces.
• Materials in transitProtects construction materials being transported to the job site. If high-value items are lost or damaged en route, this extension can cover the loss.
• Scaffolding and temporary structuresAdds coverage for items not directly part of the building but essential to the work, such as scaffolding, fencing, or trailers.
• Debris removal and cleanupPays for removing damaged materials after a loss, which can be costly depending on local disposal regulations.
• Testing coverageApplies when systems like sprinklers or HVAC units are tested and fail, leading to damage. This is useful in the final stages of construction.

How to choose the right endorsements

Not every project needs every add-on. To decide what’s worth it:

• Evaluate the construction method and timeline
• Consider high-risk phases (e.g., mechanical installation or equipment delivery)
• Ask your insurer for cost vs. benefit scenarios before adding endorsements

Endorsements can strengthen your policy but only if they reflect your project’s specific risks. A thoughtful review with your insurer ensures you’re paying for protection that truly fits.

How to choose the right policy for your project

Every construction project carries its own risks. Choosing the wrong insurance policy or skipping key coverage can leave you exposed. The goal is to match the policy to the specific needs of your build.

Start with the project type and scope

The size, value, and type of your construction job will shape your insurance needs. Ask yourself:

• Is this a new build, a renovation, or a structural addition?
• Will construction take place in phases or all at once?
• Are high-value materials or specialized equipment involved?

Larger and more complex jobs may require broader coverage and more detailed policy terms.

Know who holds the insurable interest

Determine who owns the project during construction. This might be the property owner, a contractor, or a developer. That person or entity should be listed as the named insured on the policy. Others with a financial stake like lenders or subcontractors may also need to be included as additional insureds.

Identify specific risks to cover

Every job site has different exposures. Consider:

• Weather-related risks (e.g., wind or water damage)
• Theft or vandalism concerns
• Delays that could lead to financial losses
• Storage or transport of materials before use

Then, work with your insurer to select any add-ons or endorsements that address those concerns.

Compare providers and read the fine print

Not all builders risk policies are alike. Before choosing one:

• Compare multiple quotes not just prices, but also exclusions and limits
• Clarify the policy’s start and end dates
• Make sure the valuation method (replacement cost vs. actual cash value) aligns with your expectations

Choosing the right builders risk policy starts with understanding the unique nature of your project. A bit of planning upfront can prevent major financial gaps later.

Common mistakes to avoid when purchasing coverage

Builders risk insurance can be a powerful safety net but only if it’s set up correctly. Overlooking key details or making assumptions during the buying process can lead to costly gaps in coverage.

Waiting Too Long to Purchase

Delaying coverage until after construction starts is one of the most common errors. Losses that occur before the policy is active won’t be covered. Always secure the policy before materials arrive or work begins.

Underestimating Project Value

Trying to save on premiums by insuring less than the full replacement cost is risky. If a loss happens, you may receive only partial compensation. Include materials, labor, and soft costs where appropriate.

Ignoring Exclusions

Not all risks are automatically covered. Failing to read the fine print or assuming that flood, theft, or equipment breakdown is included can result in denied claims. Ask for clarification before you commit.

Overlooking Coverage End Dates

Some policies end when the project is completed or when the building is occupied even if minor work is still ongoing. Know exactly when your coverage stops, and arrange extensions if needed.

Skipping Key Endorsements

Every project has unique risks. Leaving out relevant endorsements like testing coverage or protection for materials in transit can leave you exposed. Review potential add-ons with your insurer before finalizing the policy.

Buying builders risk insurance shouldn’t be rushed. A careful review of what’s covered, what’s not, and what your project truly needs can prevent surprises down the line.