Builder’s Risk Insurance: What It Is, Coverage & Cost in 2023
Nathan Weller is an Insurance Expert focusing on insurance for small business. He has 15 years experience in insurance operations, FNOL, and claims handling.
Builder’s risk insurance is a specialized type of commercial property insurance available as a standalone policy or as an endorsement. It covers damage to a building project or renovation during construction and ends when the project is completed. Policies usually cover fire, theft, vandalism, and weather events, and costs range from 1% to 5% of the total construction project, so for a $250,000 project builder’s risk insurance could run anywhere from $2,500 to $12,500.
Who Needs Builder’s Risk Insurance?
Every new construction and most major renovation projects need builder’s risk insurance. Beyond the builder, other parties who have an insurable interest, or a financial stake, in the project should ensure they’re named on the policy. Parties that are often named insureds include the property and project owner, developer, general contractor, bank or lending institution, architect, and engineer.
How Builder’s Risk Insurance Works
Builder’s risk insurance covers the first-party property involved in a construction project: materials, fixtures, equipment, and the structure itself. It can be two types of policies: named peril and all-risk.
A named-peril policy covers specified losses like fire, theft, vandalism, or types of extreme weather like hail, whereas an all-risk policy covers all forms of risk less the ones specifically excluded in the policy. The policy is purchased for the specified project term, such as three, six, or 12 months.
As an example, let’s say you purchased some land and began constructing a new structure. A builder’s risk policy would be taken out for the project and cover the building, materials, and equipment involved. If a trespasser steals some of the material or accidentally causes a fire from a cigarette, then you could file a claim on the builder’s risk policy for the cost to rebuild or replace the materials.
Builder’s Risk Insurance Coverage & Exclusions
A builder’s risk policy is designed to cover typical risks builders face. Even when a structure is built partially, it still has value. Like all insurance policies, builder’s risk has specified coverage and exclusions.
What Builder’s Risk Covers
Builder’s risk policies can be named peril, meaning the specific named perils listed are covered, or all-risk, meaning coverage extends to any exposures associated with the project less the listed exclusions.
Risks commonly covered by builder’s risk insurance include:
- Fire
- Theft
- Vandalism
- Wind, hail, and rain
- Collision (by vehicle or aircraft)
Covered property often includes materials, supplies, and fixtures. You can add endorsements to include machinery and equipment and unattached structures, like office trailers, fences, landscaping, and scaffolding.
What Builder’s Risk Does Not Cover
Common exclusions are acts of war, intentional damage and normal wear and tear, and third-party liability. Most policies also exclude extreme acts of nature, such as earthquakes and floods. However, while exclusions take coverage away, most providers offer endorsements, which—if purchased—will give that coverage back.
Builder’s Risk Common Endorsements
Endorsements change the policy by adding, removing, or altering the coverage. Depending on your policy and the building project, an endorsement may be necessary to ensure your investment is protected fully.
Common builder’s risk insurance endorsements you can purchase are:
- Materials and property in transit
- Scaffolding at the job site
- Backup of sewer and drain
- Tools used and stored at the site
- Heavy equipment and machinery
Review your policy for the exclusions and listed coverage to have a good idea of what is covered and any endorsements you may want to purchase.
Builder’s Risk Insurance Costs
Builder’s risk insurance costs vary widely based on the type of the project, location, construction costs, and construction type, including materials. Premiums usually run anywhere from 1% to 5% of the project cost.
Cost of the Project | Estimated Builder’s Risk Premium |
|---|---|
$100,000 | $1,000 to $5,000 |
$250,000 | $2,500 to $12,500 |
$500,000 | $5,000 to $25,000 |
$1 million | $10,000 to $50,000 |
The key factors builder’s risk insurance companies consider when determining the premium include
- Project duration: The faster a project takes to complete, the lower your premium is because the window for accidents to occur is reduced. Longer projects tend to have more downtime, leaving the location unattended and exposed to more losses.
- Project locations: Geographic locations may increase the chances of perils, such as hail, windstorms, or even crime.
- New construction: New construction projects need coverage for excavation, site preparation, infrastructure, temporary structures, and even temporary power stations.
- Renovations and remodeling: Protecting an existing structure during a major renovation increases the costs of builder’s risk. The most notable recent claim on a remodel happened in France when the Notre Dame Cathedral was consumed in a fire.
- Construction materials: Using high-quality materials for cabinetry, windows, or other features usually require more coverage for the project.
One way to offset the cost is by raising your deductible. A higher deductible usually translates into some lower adjustment to the premium. But remember, the deductible is your responsibility to pay if you end up filing a claim.
Other Insurance Builders May Need
Builder’s risk insurance doesn’t cover every type of loss. Given your business and type of exposure, other policies should be considered.
- Commercial general liability covers third-party bodily injury, property damage, and related legal costs. Since builder’s risk doesn’t carry liability, you’ll need general liability in case a third party gets injured on your job site.
- Commercial auto insurance covers damage to your vehicle, other vehicles, and injured parties involved in an accident.
- Professional liability insurance covers injuries, property damage, and related costs caused by your work, including advice. Also protects against claims arising from an error in building or failure to fulfill a building contract.
- Workers’ compensation covers your employees’ medical bills and lost wages for work-related injuries or illnesses.
- Commercial Umbrella Insurance increases liability coverage on many business liability policies, including general liability, commercial auto, and workers’ compensation.
Frequently Asked Questions (FAQs)
It can be. Mortgage companies covering the project can require builder’s risk, and it may also be required in the agreement between the builder and the general contractor. Builder’s risk insurance is always a good idea for a new build or a major renovation.
General contractors, property owners, and financing parties (lenders) involved with the building project need builder’s risk insurance. Normally, general contractors purchase the policy and include the stakeholders as named insureds. However, it is possible to have other stakeholders, such as a homeowner, purchase the policy.
No, property insurance is a traditional type of policy that covers an existing structure, whereas builder’s risk is a specialized type of commercial property insurance that covers risks during construction. Both policies are first-party coverage.
For homeowners expanding the footprint of their home, check with your existing homeowner’s policy to see what coverage is extended during construction. A rider to give the necessary coverage is often available, as the standard homeowner policy may be limited in coverage.
The premium for builder’s risk insurance is usually anywhere from 1% to 5% of the total cost of the project. The type of property, location, and materials all play a part in the final cost.
Bottom Line
Whether your project is a ground-up construction, renovation, or remodel, you need builder’s risk insurance to protect you from the financial burden of damage to your project, materials, or equipment. CoverWallet is an online brokerage where you can get multiple quotes from different providers for builder’s risk insurance in minutes.
