Builder's risk insurance is coverage that protects a building, and the materials on site, while it is being built. It pays for damage from things like fire, storms, theft and vandalism until the job is done. Who buys it, and what it covers, depends on the contract and the policy.
What Is Builder's Risk Insurance in Construction?
Builder's risk insurance protects a building while it is being built. A regular homeowner policy is made for a finished house with people living in it. A home that is half framed, with lumber stacked in the yard, is a different kind of risk. Builder's risk is the policy made for that stage of a job.
It is sometimes called course of construction insurance. Whatever the name, the idea is the same. If something damages the work before it is finished, the policy helps pay to fix or replace it.
What Does Builder's Risk Insurance Cover?
Most policies cover the structure as it is being built, and the materials that will go into it, whether they are on the site or stored nearby. They protect against listed causes, such as fire, wind and storms, theft and vandalism. Some policies are broader than others, and some only cover the causes they name.
Here is a simple example. Say a storm takes the roof sheathing off a house you just dried in. A good builder's risk policy can help pay for the damaged work and the replacement materials. The exact cover depends on the policy, so read yours and do not guess.
What Does It Not Cover?
Every policy has exclusions. The ones that catch builders out most often are these:
- Your tools and equipment, which usually need their own coverage.
- Poor workmanship. The policy may not pay to redo work that was done wrong.
- Some causes of damage, such as flood or earthquake, which often need a separate policy or an add-on.
- Liability claims. If someone gets hurt or a neighbor's property is damaged, that falls under general liability, not builder's risk.
Coverage and rules vary by policy and by state. Ask your insurance agent to walk you through the exclusions before you sign.
Who Buys Builder's Risk Insurance?
The contract decides. On some jobs the builder buys it. On others the owner does. A lender on a construction loan will often ask for proof of it before releasing money, so it can show up in the paperwork around a draw. If the policy lapses, it can hold up payment. Our guide to why construction draw requests get rejected covers that kind of paperwork problem.
The important part is to settle it early. Write down who buys the policy, who is named on it, and who pays the deductible. Most disputes on this come from each side thinking the other one had it covered.
When Does Coverage Start and End?
Coverage usually starts when the policy begins and the work is underway. It usually ends when the project is finished, when the owner moves in or takes over the building, or when the policy expires. Some policies also limit or change coverage when a finished house sits empty.
If a job runs long, call your agent before the policy ends. Getting an extension in place is easier than trying to cover a loss that happened the day after the policy ran out.
What Builders Should Watch For
Gaps in cover are where builders get hurt. A few things to keep in mind:
- Confirm in writing who buys the policy and who is named on it.
- Check the start and end dates against your real schedule, not the one you hoped for.
- Keep a copy of the policy with the job file, and send proof to your lender when they ask.
- Ask what happens to coverage when the house is finished but not sold or occupied.
Builder's risk is not a cost you want to use, but it is one you want in place. A fire or a storm on a half-built house can wipe out the profit on a job. The policy is what keeps one bad night from doing that.
Frequently Asked Questions
What is builder's risk insurance?
Builder's risk insurance covers a building while it is under construction, along with materials stored on site. It pays for damage from events like fire, storms, theft and vandalism. A regular homeowner policy does not usually do this job for a home that is still being built.
What does builder's risk insurance cover?
Most policies cover the structure being built and the materials on site, against listed causes such as fire, wind, theft and vandalism. Some policies cover more than others. Read the policy for what is included, what is excluded, and any limits, because they differ between insurers.
Who pays for builder's risk insurance?
It depends on the contract. On many jobs the builder buys it, and on others the owner does. A lender on a construction loan may require it. Decide who buys it before work starts, and write it in the contract so nobody assumes the other side has it covered.
When does builder's risk coverage end?
Usually when the project is finished, when the owner takes over or moves in, or when the policy runs out, whichever comes first. Check the exact wording. If the job runs late, ask your agent about extending the policy before it ends, not after.
Is builder's risk insurance the same as general liability?
No. Builder's risk protects the building and materials. General liability covers claims that you hurt someone or damaged their property. Most builders need both, plus workers' compensation if they have employees. Your insurance agent can tell you what your jobs require.
Does builder's risk insurance cover tools and equipment?
Usually not. Your tools and equipment generally need separate coverage. Builder's risk is about the building and the materials that will go into it. Ask your agent what your policy does and does not cover, so you find out before a loss and not after.
