Builders Risk Insurance Guide: Protect Your Construction Project

What Is Builders Risk Insurance?

Builders risk insurance (also called installation floaters or course of construction insurance) protects the building structure and materials while under construction. Unlike general liability insurance, which covers bodily injury and property damage caused by your work, builders risk covers damage to the building itself and materials on-site.

This coverage is project-specific and temporary—it's written for a defined construction period. Once the project is substantially complete, the coverage ends and the property owner typically switches to standard property insurance.

What Does Builders Risk Cover?

Covered Perils

Most builders risk policies cover damage from:

• Fire and smoke
• Wind and hail
• Theft and vandalism
• Lightning and explosion
• Falling objects
• Weight of ice, snow, or sleet
• Water damage from accidental discharge or overflow
• Equipment breakdown

What's NOT Covered

Standard builders risk policies typically exclude:

• Damage from poor workmanship or faulty design
• Water damage from flooding or seepage (can be endorsed)
• Damage caused by war, terrorism, or civil unrest
• Damage from "wear and tear" or gradual damage
• Damage caused by failure to properly maintain equipment
• Damage resulting from intentional acts by the insured

Policy Valuation: Getting It Right

Proper valuation is critical for builders risk. Under-insure and you face significant loss recovery limits. Over-insure and you pay unnecessary premiums. Here's how it works:

Completed Value Approach

The policy is written for the estimated completed value of the project—the total cost when finished. This is the most common approach. For example, if you're building a $2 million commercial building, you'd typically insure it for the full $2 million completed value.

Advantage: Simpler underwriting. If a significant loss occurs late in construction, there's adequate coverage.

Disadvantage: You pay premiums on the full value even though only a portion of the building is exposed at any given time.

Reporting Form Approach

With a reporting form policy, you report actual values as construction progresses, and premiums adjust accordingly. Initial estimates drive the deposit premium, with adjustments based on actual values.

Advantage: Potentially lower total premium if project costs come in below estimates.

Disadvantage: Requires accurate reporting. Under-reporting can result in coverage penalties.

What Should Be Included in Valuation?

• Cost of the building structure and permanent improvements
• Labor costs
• Materials and supplies
• Temporary structures and site improvements
• Contingencies and overhead (if applicable)

Ask your insurance agent about the appropriate valuation method for your project type and size.

Policy Duration and Timing

Builders risk is written for a specific construction period. It typically begins on the date work commences and runs for a defined period—commonly 12, 18, or 24 months depending on project duration.

Key Timing Considerations

• Start Date: Coverage should begin when you start actual construction work, including site preparation
• End Date: Coverage typically ends when the structure is substantially complete or the project is substantially occupied
• Material Delivery: Some policies cover materials in transit and at the site even before construction starts
• Delays: If construction is delayed, ensure your policy duration is extended

Cost of Builders Risk

Builders risk premiums vary based on:

• Project Type: Residential vs. commercial, construction method (wood vs. masonry vs. steel)
• Project Value: Larger projects typically have lower rates per dollar
• Location: Geographic risk (hurricane zones, earthquake zones, theft rates)
• Occupancy Type: More hazardous occupancies cost more
• Project Duration: Longer exposure = higher premium
• Deductible: Higher deductibles lower premiums significantly
• Your Loss History: Claim history affects rates

As a rough benchmark, builders risk typically runs from 1-4% of the insured value annually, depending on these factors. A $2 million residential project in Tennessee might cost $15,000-$30,000 for a 12-month policy.

Who Purchases Builders Risk?

General Contractors

GCs typically purchase builders risk because they manage the overall project and bear responsibility for project assets. This is standard practice on most projects—the GC includes builders risk in the bid and the cost is passed through to the project owner.

Property Owners

In some cases, especially owner-builders or developers, the property owner purchases builders risk directly and includes the contractor as an insured.

Subcontractors

Subcontractors are typically named as additional insureds on the GC's builders risk policy. They generally don't carry separate builders risk unless they're directly managing a project.

Coverage Endorsements

Standard builders risk can be customized with endorsements to address specific needs:

Common Endorsements

• Flood Coverage: Adds coverage for water damage from flood (typically excluded)
• Equipment Breakdown: Extends coverage to include mechanical breakdown
• Boiler and Machinery: Covers pressure vessels and boiler damage
• Additional Insured Endorsements: Names other parties as insureds
• Waiver of Subrogation: Protects other parties from subrogation recovery
• Loss Payable Endorsements: Specifies who receives claim payments

Claims and Loss Recovery

Filing a Claim

If damage occurs during construction:

1. Document the damage thoroughly with photos and detailed descriptions
2. Contact your insurance agent immediately—don't delay
3. Preserve all evidence; don't remove or repair damage until the adjuster reviews it
4. Provide all requested documentation—contracts, purchase orders, receipts
5. Cooperate with the insurance company's investigation

Recovery and Repair

Once a claim is approved:

• The insurer may pay for repairs or provide a cash settlement
• Some policies require competitive bids before authorization
• Repairs must be completed in a timely manner
• The policy applies toward cost recovery, not profit

Best Practices

Key Takeaway

Builders risk is essential project protection, but it requires proper setup. Work with your insurance agent early in the project planning phase to ensure the right coverage amount, duration, and endorsements. Don't wait until construction is underway to address insurance—the foundational decisions are made before the first shovel hits the ground.

And remember: builders risk protects the structure and materials. Your general liability covers your responsibility for injuries and damage you cause. You need both.