Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 6 minutes
When you’re in the construction business, a lot can go wrong. Fires, severe weather, theft, and vandalism can damage partially completed work, delay your schedule, and strain your cash flow. Builder’s risk insurance, also known as course of construction insurance, is designed to protect a project’s value while it is being built or renovated.
What is builder’s risk insurance?
Builder’s risk is a first-party property policy intended to cover direct physical loss or damage to a building or structure while it is under construction or renovation. Depending on the policy, it may also cover certain project materials and components to be installed, and may include extensions for items such as debris removal or materials in transit, often with sublimits.
A practical way to think about builder’s risk is as the property-protection component of a construction insurance program. It protects the project itself. It does not replace liability insurance.
Builder’s risk is not the same as general liability
Builder’s risk generally addresses damage to the project property. Commercial general liability is designed to address claims from third parties, such as bodily injury or property damage allegations. Most projects need both coverages to avoid gaps.
What builder’s risk can cover
Coverage depends on the insurer, the policy form, and the endorsements purchased. Many builder’s risk policies are written broadly, but all policies include exclusions, conditions, and sublimits that matter during a claim.
Common covered property and costs may include:
Damage to the building or structure under construction
Many policies cover physical loss to the work in progress from covered causes such as fire, theft, vandalism, and certain weather events.
Materials, supplies, and fixtures to be installed
Builder’s risk often covers materials intended to become a permanent part of the project. Some policies also extend to materials in transit or at temporary storage locations, typically with declared values and sublimits.
Temporary structures and certain jobsite property
Some forms can cover temporary structures and scaffolding, often as additional coverage with a separate sublimit. Always confirm whether trailers, forms, fencing, and scaffolding are included and, if so, under what limit.
Debris removal
Many policies include debris removal coverage following a covered loss, subject to policy limits and timing requirements.
Soft costs and delay-related expenses
Soft costs coverage is typically an optional endorsement. If purchased, it may help reimburse certain additional expenses that result from a covered physical loss that delays completion, subject to a separate limit and the policy’s definition of the delay period.
Common exclusions and gaps to plan for
Builder’s risk is valuable, but it is not everything. Common items that may be excluded or limited include:
- Flood and earthquake: Often excluded unless added by endorsement, and availability varies by carrier and location.
- Faulty workmanship, design errors, or defective materials: Often excluded for the cost to fix the defect itself, though some forms may cover resulting damage to other property, depending on wording.
- Contractor tools and mobile equipment: Typically handled under contractor’s equipment or inland marine coverage, not builder’s risk.
- Employee theft or dishonest acts: Often excluded unless specifically added.
- Normal wear and tear or mechanical breakdown: Usually excluded.
If your project has a specific exposure, such as coastal wind, water intrusion, or an occupied renovation, address it up front. Do not assume it is included.
When does builder’s risk coverage start and end?
Builder’s risk is temporary by design. Coverage start and end triggers vary by form, but many policies end at the earliest of events, such as:
- The project (or a portion of it) is completed
- The property is occupied, even partially, or put to its intended use
- The work is accepted by the owner, ownership transfers, or your insurable interest ends
- The policy expires or is canceled
This is a common area where contractors get surprised, especially when a tenant moves product in early, or the owner begins using the space before formal completion. Confirm your policy’s triggers and extend coverage if the project schedule changes.
How to choose the right limits and deductible
Set the limit based on the completed value
Your limit should generally reflect the total completed value at risk, including labor and materials, and any owner-furnished materials that must be insured under the contract. Underinsuring can create claim problems.
Review sublimits that can cap recovery
Pay special attention to sublimits for theft, materials in transit, off-site storage, temporary structures, and soft costs. These are frequent pain points during claims.
Choose a deductible you can actually fund
Many policies apply higher deductibles for wind, hail, or named storms, depending on location and underwriting. Make sure the deductible aligns with your cash flow and contract terms.
Why do many projects carry builder’s risk
Contract and lender requirements
Many owners, developers, and lenders require builder’s risk before releasing funds or allowing mobilization. Requirements typically appear in the construction agreement and loan documents.
Financial protection during the highest-risk phase
NFPA research estimates that, from 2017 to 2021, fires in structures under construction caused about $370 million in direct property damage per year. While your project may never experience a major loss, the downside severity is high.
Continuity and schedule protection
A covered loss can stop work for weeks. Proper coverage, including optional endorsements such as debris removal or soft costs, where appropriate, can reduce the financial impact of delays.
Example claim scenarios (illustrative)
The scenarios below are hypothetical examples meant to show how builders’ risk may respond. Actual claim outcomes depend on the policy wording, endorsements, exclusions, documentation, and the cause of loss.
Overnight fire at a partially completed building
A fire damaged the framing and installed electrical. Builder’s risk may cover the physical damage to covered property and may also cover debris removal. Soft costs coverage, if purchased, may help with certain delay-related expenses.
Theft of materials staged for installation
High-value fixtures are stolen from a secured jobsite. Builder’s risk may cover theft of covered materials, but theft terms and sublimits vary widely. Confirm security requirements and theft limitations in advance.
Wind event damages the project and destroys staged materials
A windstorm damages sheathing and roofing in progress. Builder’s risk may cover wind damage. Separate wind or named storm deductibles may apply, and flood damage is often excluded unless endorsed.
Quick checklist to request a builder’s risk quote
To price and structure coverage correctly, be ready with:
- Project address and description (new build vs renovation)
- Total completed value and construction timeline
- Construction type (frame, masonry, noncombustible)
- Jobsite security (fencing, lighting, cameras, guards)
- Fire protection details (hydrants, distance to fire department)
- Any flood, earthquake, or coastal wind exposure
- Whether any part of the property will be occupied before completion
- Contract insurance requirements and lender requirements
