Builders Risk Insurance

Builder’s risk coverage is temporary and typically ends when the project is considered “complete.” This is often defined as the date the home is put to its intended use, is fully occupied, or when the policy term expires. Once the project is finished, you should transition from your builder’s risk policy to a standard, full-coverage homeowners insurance policy.

“Soft costs” refer to the indirect expenses that can pile up if a construction project is delayed due to an insured event. These can include additional real estate taxes, interest on construction loans, architectural and engineering fees, and permit costs. Many comprehensive builder’s risk policies offer endorsements to cover these financial losses.

No. Builder’s risk insurance covers the physical property, materials, and structure. General liability insurance covers your legal responsibility if someone else (a third party) is injured on your property or if their property is damaged due to your construction activities. Most construction projects require both for full protection.

Yes. Standard homeowners insurance is designed for occupied homes and often contains exclusions for major structural work or periods of unoccupancy. If you rely solely on your homeowners policy while building a new home or performing extensive renovations, you may find that claims for construction-related damages are denied.

You should start by discussing your project with an independent insurance agent who specializes in construction or real estate. They will need the total “completed value” of the project, the construction timeline, and details about the materials being used. It is best to secure this policy before you break ground to ensure there is no gap in coverage.

Costs vary based on the project’s size, location, and complexity. On average, you can expect premiums to be roughly 1% to 4% of the total completed value of the construction project. For many small-to-mid-sized projects, this may range from $1,000 to $5,000 annually, though it can be higher for large-scale developments in high-risk areas.

Any party with a financial interest in the successful completion of a construction project should consider this coverage. This includes:

• Property owners/developers: To protect their significant investment.

• General contractors: Often required by contract to carry this for the duration of the build.

• Subcontractors: Specialized trades may need it to protect their materials or work on-site.

• Real estate investors: To safeguard the value of a property being renovated for resale.

It is important to know the limitations, as these policies generally do not cover:

• Employee injuries: These are typically handled by workers’ compensation insurance.

• Liability claims: Injuries to third parties on the site are usually covered by general liability insurance.

• Faulty workmanship/design: Defects in the construction or planning are generally excluded.

• Natural disasters like floods or earthquakes: These often require separate, specific policies unless added by endorsement.

• Employee theft: Standard policies usually only cover theft by third parties.

A typical policy covers the physical structure being built, as well as the materials, supplies, and equipment intended for permanent installation, whether they are stored on-site, in transit, or at a temporary location. It protects against “perils” such as:

• Fire and lightning

• Windstorms and hail

• Theft of building materials

• Vandalism and malicious mischief

• Explosions

Builder’s risk insurance, also known as “course of construction” insurance, is a specialized type of property insurance designed to cover buildings and structures while they are under construction or undergoing major renovation. Unlike standard policies that protect a home you are already living in, this insurance is specifically tailored to the unique hazards of an active job site.