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Loading...Loading...Builder's risk insurance is a type of property insurance that protects buildings, materials, and tools from damage or loss during construction or major renovations.
Builder’s risk insurance is a type of property coverage built for buildings and structures that are still in the middle of construction or undergoing a big renovation. You might also hear it called course of construction insurance or contractor’s all-risk insurance. The name can change depending on who you’re talking to, but the concept stays the same. This policy kicks in from the moment you break ground and stays active until the project wraps up.
So why does it matter? Because a construction site is one of the most vulnerable places your money can sit. You’ve got raw materials stacked in the open, framing that hasn’t been sealed yet, and heavy equipment spread across the lot. A single storm, a fire, even a thief who walks off with copper wiring can set you back thousands of dollars. You will usually have to get this sorted before your lender releases the first draw on a construction loan. According to the National Association of Insurance Commissioners, builder’s risk falls under the commercial multiple peril classification and covers buildings in the course of construction, including machinery, equipment, and materials incidental to the project.
My colleague in our operations group mentioned something recently that stuck with me. He was reviewing a construction loan file where the borrower hadn’t lined up builder’s risk coverage yet, and the lender flagged the whole deal. That’s not unusual. Most lenders want to see proof of an active policy before they release any draws on a construction loan, because the bank has a stake in that building too.
This coverage can work for all kinds of projects. You can get a policy for a brand-new custom home, a gut renovation on an older house, a commercial office build, or even a room addition. The U.S. Census Bureau reported that residential construction spending hit about $905 billion in a recent annual period. With that much money flowing into building projects across the country, the need for this kind of protection is real.
A builder’s risk policy can give you a surprisingly wide safety net during construction. The exact terms vary from one insurer to the next, but most standard policies share a core set of protections. This is where you really want to read the fine print, because the details matter.
The backbone of any builder’s risk policy is protection against physical damage to the structure being built. That includes the framing, the foundation, roofing materials, drywall, and anything else that becomes a permanent part of the building. Most policies will have coverage for damage from fire, lightning, hail, high winds, explosions, vandalism, and vehicle collisions. Some insurers lump these together under an all-risk format, which means anything is covered unless the policy specifically says it’s not.
Your building materials are often the biggest target for loss. Lumber sitting on a job site, appliances stored in a trailer, plumbing fixtures waiting to be installed. You can usually get a policy that will protect those items while they’re on-site and, in some cases, while they’re in transit to the site. Equipment used in the construction process, like scaffolding, temporary fencing, and even certain tools, can also have coverage depending on your policy.
Here’s something that people don’t always think about. When a covered event delays your project, the costs keep piling up even though nobody is swinging a hammer. These are called soft costs, and they can include things like extended interest payments on your construction loan, real estate taxes you’re paying while the build sits idle, architect and engineering fees for redesign work, and even lost rental income if you were planning to lease the property. Not every policy includes soft cost coverage by default, so you may need to add it as an endorsement.
Some policies go beyond the building itself and extend to project documents like blueprints, permits, and engineering plans. Temporary structures on the site, such as storage trailers and retaining walls, can be covered too. If your insurer writes the policy on an inland marine form, which many do, you can often get broader coverage that the insurer tailors to your specific project. When you’re financing a build through AmeriSave, having the right coverage in place is one of the first boxes your loan team will want to check.
No insurance policy covers everything, and builder’s risk is no different. You need to know where the gaps are before you start a project so you can decide whether to add endorsements or buy separate coverage.
The most common exclusions include worker injuries, which fall under workers’ compensation insurance instead. If a roofer slips off a ladder, that’s not a builder’s risk claim. Damage caused by faulty workmanship or poor design is usually excluded too. The policy protects against outside events, not against mistakes the builder makes. Normal wear and tear, rust, corrosion, and mechanical breakdowns also land outside the scope of most policies.
Flood and earthquake damage can be tricky. Most standard builder’s risk policies exclude both, but you can often add them through endorsements or buy separate flood and earthquake policies. If you’re building in a flood zone or a seismically active area, this is something to talk about with your insurance agent early on. Acts of war and terrorism are typically excluded as well, and employee theft may need a separate fidelity bond or crime policy. AmeriSave can help you understand what your lender will expect in terms of coverage before you close on your construction financing.
Not all builder’s risk policies look the same. The one you need depends on how many projects you’re running, the total money involved, and whether you’re a homeowner doing a one-time build or a contractor managing multiple jobs at once.
This is the most common type, and it’s the one most homeowners end up with. A single project policy covers one construction job at one location. If you’re building your own house or doing a major renovation, this is probably what you need. Coverage begins when construction starts and ends when the building is finished or you move in. AmeriSave borrowers going through the construction loan process can talk to their loan team about what type of policy their lender requires.
Contractors who juggle two or more projects at the same time often go with a reporting form policy. You report each new project to the insurer as it starts, and the policy stretches to cover all of them. This can make sense for smaller contractors with a handful of active jobs, typically with combined values up to a few million dollars.
Bigger operations with dozens of active projects might use a blanket deposit policy. You don’t have to report each job individually because they’re all covered under the blanket. There’s also a blanket installation policy built for trade contractors handling extensive, high-value installation work. These are less common for homeowners and more geared toward large-scale commercial builders.
The cost of builder’s risk insurance can vary a lot, but a common rule of thumb puts premiums somewhere between 1% and 5% of the total construction budget. Where you fall in that range depends on the scope of the project, the location, the materials, and how much coverage you want.
Let’s run some real numbers so you can see what this looks like. According to the National Association of Home Builders, the average construction cost for a single-family home is about $428,000, not including land. If your build comes in around that number and your insurer charges a rate at the lower end of the range, say 1.5%, you’d pay roughly $6,420 for the policy. At 3%, that jumps to $12,840. And if your project involves higher-risk factors, like building in a hurricane-prone coastal area, you could be looking at $21,400 or more at the 5% mark.
What pushes the premium higher or lower? Several things. The total project value is the biggest driver, because that’s what the insurer will have to pay out if something goes wrong. Location matters too. Building in a rural Kentucky county with low crime and mild weather is going to cost less to insure than a beachfront project in a hurricane zone. Your contractor’s experience, the quality of materials, the timeline, and even how and where materials get stored on-site can all nudge the price up or down.
If the standard policy doesn’t give you everything you need, you can add endorsements for specific risks. Common add-ons include flood damage coverage, earthquake protection, pollutant cleanup, sewer backup, debris removal, and protection for temporary structures. Each add-on increases the premium, but it also closes a gap that could cost you a lot more if something goes wrong. Shopping around and comparing quotes from different providers can help you find the right balance between coverage and cost.
One thing that makes builder’s risk a little unusual is how the value works during the policy period. At the start of construction, the building has almost no value. It doesn’t reach its full insured value until the project is done. That’s part of why standard property insurance rates don’t apply. The risk profile changes as the building goes up, and your insurer accounts for that in the way they price the coverage.
Getting a builder’s risk policy is a little different from buying homeowners insurance. The process depends on the size and type of your project, but a few steps are pretty universal.
Before you talk to an insurer, you need to define what you’re building. How big is the structure? What’s the estimated total cost? What materials are you using? How long do you expect construction to take? Having these details nailed down saves time and helps your insurer give you an accurate quote.
An insurance broker who knows the construction space can be a huge help. Brokers have relationships with multiple insurance carriers, so they can shop your project around and get you a policy that fits your needs and budget. Keep in mind that brokers will charge fees for their services, so ask about costs upfront. You can also go directly to an insurance company, which cuts out the middleman but may limit the range of options you have to choose from.
Builder’s risk is a specialized product, and you want to make sure your insurer can actually pay out if something goes wrong. Look for companies rated A or higher by AM Best, which is a global rating firm that evaluates insurance companies based on their financial strength. AmeriSave works with trusted lending partners to help you stay on track with your financing while you line up the right insurance coverage for your build.
Read the policy carefully. Understand when coverage starts and ends, what’s excluded, and what will trigger a change in your coverage. Some policies tie the start date to a building permit or the delivery of materials. Others tie the end date to a certificate of occupancy. If there are gaps, ask about endorsements. You don’t want to get hit with a loss and find out that something important wasn’t covered.
Many people think that their homeowners insurance will cover a big renovation or addition, but that can be a costly mistake. Homeowners insurance is meant to cover a home that is finished and lived in. It protects your home, your things, and your liability if someone gets hurt on your property. But it doesn't usually have the kind of protection you need when work is going on.
Homeowners insurance doesn't cover everything that builder's risk insurance does. It protects the building while work is going on, the tools and materials on the job site, and in many cases, the money lost because of delays in construction. If you're building a house from the ground up on a vacant lot, homeowners insurance doesn't even apply yet because the house isn't finished yet.
Your homeowners insurance may not cover damage caused by construction, even if you're doing a big renovation on an existing home. Before you put the first nail in, you should talk to your insurance agent about this. You might need both policies to be in effect at the same time. The builder's risk policy would cover the work being done on the house, and your homeowners policy would cover the parts of the house that aren't being worked on. AmeriSave can help you figure out how to pay for a renovation so you can concentrate on making sure the insurance coverage is right.
When you build a new home, add on to an existing one, or gut a house down to the studs, builder's risk insurance can help you protect the money you spend on the project. Find out exactly what the policy does and does not cover. Look at the quotes. Look closely at the small print. Make sure everyone is on the same page by talking to a broker who knows about construction and your lender early on. AmeriSave can help you figure out how to pay for your project, whether it's a new build, a renovation, or something in between.
It depends on how big the job is. You probably don't need a separate policy for small cosmetic changes like painting or changing out countertops. But if you're doing structural work, adding square footage, or spending more than $50,000 on a renovation, you should think about getting builder's risk coverage. If you have major construction work done, your homeowners insurance might not cover any damage that happens. If you are getting a loan to pay for the renovation, your lender may also need it. Talk to AmeriSave about your financing choices for a renovation project.
That depends on the terms of your contract. The general contractor often buys the policy and includes the cost in the overall project bid. But the property owner might be responsible instead, according to the purchase agreement you and the contractor signed. No matter what, the policy should list everyone who has a financial interest in the project, such as the owner, contractor, subcontractors, and lender. The AmeriSave Resource Center has more information about how to finance construction.
Most policies are only good for a certain amount of time, usually 6 to 12 months. Most of the time, you can extend the policy if your project takes longer than planned, but you'll have to pay more for the extra coverage time. The coverage ends when the building is finished, when you get a certificate of occupancy, or when someone moves in, whichever comes first. Read the policy language carefully so you know exactly when your coverage ends. AmeriSave can help you figure out when to get the money for your build.
Yes. You don't need to be a licensed contractor to get a builder's risk policy. People who own homes, invest in real estate, or build homes can all get coverage. The most important thing is that you have a financial stake in the project. Your insurance company will want to know the project's total value, how long it will take, and what work needs to be done. If you're getting a construction loan, your lender will probably want to see proof of a builder's risk policy before they give you the money. At AmeriSave, you can look into different ways to pay for construction.
Most standard policies do cover the theft of building materials and some tools from the job site. However, theft by employees is usually not covered and may need a separate fidelity bond or crime policy. If materials are stolen while they are on their way to the site, your policy's specific terms will determine whether or not they are covered. The National Association of Insurance Commissioners says that you should always read the policy declarations page to find out what kinds of theft your coverage covers.
Most of the time, premiums are between 1% and 5% of the total budget for the construction. That means you could pay between $3,500 and $17,500 for the policy on a $350,000 home. The exact cost will depend on where the project is, how long it will take, what materials you use, and how much coverage you want. Extra coverage for things like floods or earthquakes will raise the premium. Start with AmeriSave to see how the costs of building and getting insurance fit into your budget as a whole.
Hard costs are the damage to the building, the materials, and the tools that are used to build it. If a fire destroys half of the framing, it costs a lot to rebuild that framing. Soft costs are the money you lose because construction was delayed. That can mean higher loan interest rates, real estate taxes, architect fees, and rental income that you don't get. Not all builder's risk policies automatically cover soft costs, so you might have to add it as an endorsement. For more information on how to keep construction costs down, go to the AmeriSave Resource Center.
Yes. Your contractor's policy usually protects their own interests in the project, not yours. As the owner of the property, you want to make sure that the policy names you as an insured party. To be sure, look at the policy declarations. In some cases, your contract might say that you need to get your own policy. The best way to be safe is to check with your insurance agent to make sure that all parties with a financial interest are listed. Talk to AmeriSave if you need help paying for your build.
There is no federal law that says builders must have insurance. But local building codes, city or county laws, and lender requirements can make it almost required. Without proof of insurance, many cities won't give you a building permit, and almost all construction lenders won't give you a loan draw unless you have an active policy. Most people aren't comfortable taking the risk of not having insurance on a six-figure construction project, even if no one is requiring it. AmeriSave can help you figure out how to pay for and insure your project.
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