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Builder’s risk insurance protects property and construction materials during a construction or renovation project. Builder’s risk insurance covers property on construction sites when it’s damaged or destroyed by fire, vandalism or other unexpected events. Coverage ends when the project is complete.
If you have a financial stake in a construction project, you should have builder’s risk insurance. This kind of business insurance may also be required by a mortgage or construction agreement.
Builder’s risk insurance policies, also known as course of construction insurance policies, can vary widely from one provider to another. To make sure you get the coverage you need, read insurers’ quotes closely and consider working with an insurance broker.
Who needs builder’s risk insurance?
Builder’s risk insurance is important coverage for anyone with a financial interest in a property that’s being built or renovated, including:
- Building owners.
- Architects or engineers involved with the project.
- Contractors or subcontractors.
When multiple parties go in on a construction project together, the general contractor will usually purchase the builder’s risk policy and act as the primary insured. The building owner and subcontractors will be listed as additional insureds. However, depending on what the construction contract says, the building owner might have to purchase the policy.
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What does builder’s risk insurance cover?
In general, builder’s risk insurance covers the property on construction sites when it’s damaged or destroyed by fire, wind, vandalism, vehicle collisions or other accidents. Some policies also cover construction materials stored off-site and cleanup costs like debris removal.
But there’s no standard template for a builder’s risk policy, which is different from many other types of business insurance. As a result, coverage can vary a lot by provider. Here's what to look for in your policy:
Materials that can be covered if they’re damaged or destroyed: All builder’s risk insurance policies will cover the building that’s being constructed or renovated and, usually, materials that you store off-site that are damaged or lost in transit to the construction site.
Policies may not include the following by default, though. If yours doesn’t, you may be able to add coverage via an extension:
- Documents and data: Blueprints, specifications and other documents that are damaged or lost.
- Temporary structures: Such as scaffolding or signs.
- Soft costs: The “soft costs” of delayed construction, such as architect fees, penalties owed to the local government and additional real estate taxes.
Other covered costs in case of property damage: In addition to physical damage or loss, you can be reimbursed for protective measures that you have to take as a result of the damage, such as debris removal and pollutant cleanup. If you’re repairing a building that had previously received green energy certifications, your policy may even cover those recertification fees.
How the insurance company will determine the value of your property: Some insurance companies pay only for the actual cash value of damaged or lost property, and others pay for the property’s replacement value. The latter usually results in larger payouts, but also more expensive premiums.
Covered causes of loss: Builder’s risk policies usually provide all-risks coverage, which means they cover property damage caused by anything except what is specifically excluded in the policy.
What’s excluded by builder’s risk insurance?
Some causes of loss that are often excluded from builder’s risk insurance policies are:
- Employee theft.
- Work vehicles.
- Damage from earthquakes and flooding.
- Manufacturing defects or flaws in workmanship or design.
- Ordinary wear and tear.
Builder’s risk policies also exclude damage that occurs after a project is finished. Once construction is complete, your coverage ends. At that point, you can get coverage that’s similar to builder’s risk insurance by purchasing:
- Business property insurance, to cover the structure and its contents in case of fire, theft, hail or other accidents.
- Inland marine insurance, to cover materials and products while they’re in transit.
Builder’s risk insurance providers
Builder’s risk insurance is highly specialized, so it’s best to buy coverage through insurance companies that have experience with this product. It might be helpful to shop for a policy through an insurance broker who is familiar with the construction industry.
Here are the top insurance companies for builder’s risk insurance:
The Hartford
Best for: Broad builder’s risk insurance coverage.
5.0
NerdWallet ratingThe Hartford includes coverage for many things that are optional with other carriers, including all of the following:
- Up to $100,000 for blueprints, schematics and other valuable documents that are associated with the project.
- Contract penalties up to $50,000 if you owe fines or legal fees as a result of delays in the construction project.
- Expedited costs up to $25,000 if you experience a loss and need to expedite new supplies or quickly hire additional labor.
- Third-party property that is stored at the construction site.
In order to get started with The Hartford, you’ll need to contact a local insurance agent. An online quote isn’t available for builder’s risk insurance.
Chubb
Best for: Homebuilders or larger businesses.
5.0
NerdWallet ratingChubb offers a builder’s risk insurance policy tailored to homebuilders, whether you’re building a single house or a tract development. This coverage includes:
- Community structures, like clubhouses, common areas and model homes.
- Commercial buildings that are part of master-planned communities.
- Completed homes that haven’t yet been sold.
- Infrastructure development.
If you’re not a homebuilder, Chubb’s more general builder’s risk insurance might be a better fit. It covers U.S. builders who are working abroad and includes a variety of endorsements for sustainable projects.
If your business generates more than $1 million in revenue, you can’t get a quote online, but you can use Chubb’s website to find an insurance agent near you.
Travelers
Best for: Businesses seeking replacement value coverage.
5.0
NerdWallet ratingTravelers builder’s risk insurance includes:
- The value of covered property based on replacement value, not actual cash value.
- Both permanent fixtures and temporary fixtures, such as signs and scaffolding.
- Customized soft costs coverage or the Travelers default of $100,000 in soft costs coverage limits.
- Automatic green building coverage.
Travelers insurance is sold through a network of independent insurance agents. Use the Travelers website to find an agency near you.
How much does builder’s risk insurance cost?
The cost of builder’s risk insurance typically accounts for 1% to 5% of a business’s total construction budget. For example, if your construction budget is $100,000, and you have a three-month builder’s risk policy, you might end up paying somewhere between $300 to $1,300 per month in premiums.
The following factors can affect the cost of your builder’s risk insurance policy:
- Cost of the project.
- Location of the project.
- Timeline of the project.
- Square footage of the construction site.
- Expertise and experience of the contractors and subcontractors who will be handling the project.
- Amount of coverage.
- Quality of materials used in the construction.
- Logistics of the project, such as where construction materials are stored.
Before getting a business insurance quote for builder’s risk insurance, you should carefully evaluate your construction budget. This is the total value of the completed building (excluding land value) plus materials costs and labor costs. Depending on what your policy covers and any add-on coverage that you buy, you should also estimate the soft costs of construction delays. This can help you determine appropriate coverage limits.
A version of this article originally appeared on Fundera, a subsidiary of NerdWallet.
