Builders Risk Insurance: Agent's Guide

Builders risk insurance — also called course of construction insurance — covers buildings and structures while they are being built, renovated, or remodeled. It protects against physical damage to the structure, materials, and supplies on the construction site from covered perils like fire, wind, theft, and vandalism. Without builders risk, a catastrophic event during construction can leave the project owner, general contractor, or both facing hundreds of thousands (or millions) of dollars in uninsured losses.

This is a coverage that falls under the broader inland marine insurance category, though it functions very differently from a contractors' equipment floater or transit policy. Builders risk is project-specific, time-limited, and tied to the value of the construction project itself. For agents, it's a line that comes up on virtually every new construction or major renovation project — and getting the details right matters because the exposures are large and the coverage nuances are significant.

The construction insurance market is substantial. According to IBISWorld, the U.S. construction insurance sector generates over $30 billion in annual premiums, with builders risk representing a meaningful portion of that total. As construction activity continues across commercial, residential, and infrastructure segments, agents who understand builders risk can capture premium on every project their contractor and developer clients undertake.

TLDR: Builders risk covers structures under construction (and materials, supplies, and temporary structures on site) against fire, wind, theft, vandalism, and other covered perils. Pricing typically runs 1%–4% of the total project value, depending on construction type, location, and project duration. Either the general contractor or the project owner can purchase the policy. Coverage begins at project start and ends at the earliest of project completion, occupancy, or the policy expiration date. Key endorsements include soft costs, flood, earthquake, and testing coverage.

What Builders Risk Covers

The Structure Under Construction

The primary coverage is the building or structure itself — from foundation to completion. This includes:

• Permanent materials and supplies — lumber, steel, concrete, roofing materials, drywall, and all building components that will become part of the finished structure
• Fixtures and equipment being installed — HVAC systems, electrical wiring, plumbing, elevators, and other permanently installed building systems
• Foundations — depending on the policy form, foundation coverage may be included or require specific scheduling

Coverage applies from the moment construction begins and increases as the project progresses — a $5 million project may have only $200,000 in exposure during the foundation phase but $4.5 million in exposure as the building nears completion.

Materials and Supplies

Builders risk covers building materials and supplies in three locations:

• On the construction site — materials stored on site awaiting installation
• In transit — materials being transported to the construction site (some policies include this automatically; others require endorsement)
• At temporary storage locations — materials stored off-site at a warehouse or staging area (typically subject to sublimits)

Temporary Structures

Most builders risk policies cover temporary structures that support the construction process:

• Scaffolding
• Temporary fencing and barriers
• Construction trailers and site offices
• Temporary utilities (power, water connections)
• Formwork and shoring

What Builders Risk Does NOT Cover

This is as important as what the policy covers. Standard builders risk policies exclude:

• Contractors' tools and equipment — owned tools, hand tools, and construction equipment (covered under a contractors' equipment floater, not builders risk)
• Existing structures — if the project is a renovation, the existing building is covered under the owner's commercial property insurance, not the builders risk policy. Builders risk covers only the new construction or renovation work.
• Automobiles and licensed vehicles — covered under commercial auto policies
• Land and land values — the land itself is not insurable personal property
• Plans, blueprints, and design documents — unless specifically endorsed

Who Buys Builders Risk Insurance

One of the first questions on any construction project: who purchases the builders risk policy? The answer depends on the contract terms, but there are three common arrangements.

Owner-Purchased Builders Risk

The project owner (developer, property owner, or entity commissioning the construction) purchases a single builders risk policy that covers the entire project. The general contractor and subcontractors are typically named as additional insureds or loss payees.

Advantages:

• Single policy eliminates gaps and overlaps between multiple policies
• Owner controls coverage terms, limits, and carrier selection
• Subcontractors don't need to factor builders risk into their bids, potentially reducing project costs
• Simplifies claims — one policy, one carrier, one adjuster

When this makes sense: Large commercial projects, institutional projects (hospitals, schools, government buildings), and projects where the owner has sophisticated insurance counsel.

Contractor-Purchased Builders Risk

The general contractor purchases the builders risk policy as part of their construction contract obligations. The owner is typically named as an additional insured or loss payee.

Advantages:

• Contractor has existing carrier relationships and can often secure competitive pricing
• Contractor controls the claims process, which they may prefer for speed and efficiency
• Common on smaller projects where the owner is less insurance-savvy

When this makes sense: Smaller commercial and residential projects, design-build projects, and situations where the contract assigns builders risk responsibility to the GC.

Shared Responsibility

Some contracts split insurance responsibilities. For example, the owner may purchase builders risk for the structure, while the GC carries inland marine for equipment and tools. This is less common and can create coordination issues, but it occurs on complex projects with negotiated contract terms.

The Contract Language Matters

The AIA (American Institute of Architects) standard contract documents address builders risk insurance directly. AIA Document A101/A201 assigns builders risk responsibility to the owner by default. However, construction contracts are frequently modified, and agents need to read the insurance provisions of the actual contract — not assume the standard terms apply.

Agent tip: Always ask to review the insurance requirements section of the construction contract before quoting builders risk. The contract specifies who buys the policy, what limits and coverages are required, and who must be named as additional insureds.

Policy Duration and Timing

Coverage Period

Builders risk is inherently temporary. The policy covers the construction period — from the start of construction to project completion. Key timing provisions:

• Policy inception: Typically aligns with the start of site work or the date materials first arrive on site
• Policy expiration: Set for the anticipated completion date, with provisions for extensions
• Early termination triggers: Coverage ends at the earliest of:
  • The stated policy expiration date
  • When the structure is completed and accepted by the owner
  • When the owner occupies or puts the building to its intended use
  • When the insured's interest in the property ceases
  • A specified number of days after completion (often 30–90 days)

Extensions

Construction projects routinely exceed their planned timelines. Most builders risk policies allow extensions for additional premium, but the extension must be requested before the policy expires. A gap in coverage during active construction is a serious exposure.

Common extension costs: Typically pro-rated based on the original premium. If a 12-month policy with a $15,000 premium needs a 3-month extension, the additional premium would be approximately $3,750.

Occupancy Issues

The occupancy trigger is one of the most common sources of builders risk disputes. Once the owner begins using the building — even partial occupancy of completed floors while upper floors are still under construction — the standard builders risk policy terminates or restricts coverage. Partial occupancy endorsements are available and should be discussed whenever phased construction or early occupancy is planned.

Common Exclusions

Standard Exclusions

Most builders risk policies exclude:

• Faulty workmanship and materials — if a subcontractor installs defective wiring, builders risk doesn't cover the cost of redoing the work. However, if the defective wiring causes a fire that damages other parts of the building, the resulting fire damage is typically covered. This "resulting loss" distinction is critical.
• Wear and tear and deterioration — gradual degradation is not a covered peril
• Earthquake — excluded in standard forms but available by endorsement (expensive in seismic zones)
• Flood — excluded in standard forms; available through NFIP or private flood markets. Flood endorsements on builders risk are particularly important for projects in or near flood zones, where an unfinished building is more vulnerable to water damage than a completed structure.
• Employee dishonesty — theft by employees of the contractor is excluded (covered under a commercial crime policy)
• War, terrorism, and nuclear hazard — standard commercial insurance exclusions
• Government action — seizure or destruction by government order
• Mechanical breakdown — equipment failure without an external cause of loss
• Pollution — environmental contamination from construction activities
• Design errors — the cost of redesigning due to a design defect is not covered (though resulting physical damage may be)

Exclusions That Vary by Form

• Theft — some builders risk forms exclude theft entirely or limit it to specific circumstances (occupied vs. unoccupied sites, fenced vs. unfenced sites). Theft is a major exposure on construction sites, particularly for copper, HVAC equipment, and high-value fixtures. Verify that theft is covered and understand any conditions.
• Weather damage to property in the open — some forms exclude or sublimit damage to materials and supplies stored outside, not yet incorporated into the structure. A windstorm that destroys a pallet of roofing materials sitting in the parking lot may not be covered under all forms.
• Soft costs — additional expenses beyond physical property damage (discussed in detail below)

Pricing: How Builders Risk Is Rated

The Rate-on-Value Approach

Builders risk is priced as a percentage of the total completed project value (also called total insured value or TIV). The rate is expressed as a dollar amount per $100 of project value, and the resulting premium covers the entire construction period.

Typical Pricing Ranges

The general industry benchmark is 1%–4% of total project value, depending on risk factors:

Example: A $3 million masonry commercial building with a rate of $1.25 per $100:

$3,000,000 / $100 x $1.25 = $37,500 premium for the construction period

Primary Rating Variables

• Construction type — frame (wood) construction rates significantly higher than fire-resistive (steel/concrete) due to higher fire exposure. ISO construction classes directly affect pricing.
• Project value (TIV) — the total completed value of the project, including all materials, labor, and installed equipment. Higher values mean higher premiums, but rates per $100 often decrease for larger projects.
• Project duration — longer projects mean longer exposure periods and higher premiums. A 24-month project costs more than a 12-month project of the same value.
• Location — geographic factors including weather exposure (coastal wind, hail, wildfire), crime rates (theft exposure), and fire protection class. Coastal and hurricane-prone locations rate substantially higher.
• Occupancy/use — what the completed building will be used for. A warehouse rates differently from a restaurant or a hospital.
• Deductible — standard deductibles range from $2,500 to $25,000. Higher deductibles reduce premiums.
• Coverage extensions — adding flood, earthquake, soft costs, or testing coverage increases premiums.
• Contractor experience — the general contractor's track record, financial stability, and loss history affect carrier appetite and pricing.

Renovation vs. New Construction

Renovation projects are generally more expensive to insure than new construction because:

• The existing structure creates additional exposure (fire in the existing building can damage new work)
• The interface between old construction and new work creates complexity in claims adjustment
• Access for fire suppression may be limited during renovation
• Occupied renovation projects (the building is partially in use during construction) have higher risk

Essential Endorsements

Soft Costs Endorsement

The soft costs endorsement is one of the most important additions to a builders risk policy — and one that agents frequently overlook. Soft costs are the non-construction expenses that continue or increase when a covered loss delays the project.

What soft costs cover:

• Loan interest and financing charges — the additional interest expense during the delay period. If a construction loan charges $25,000 per month in interest, a three-month delay from a fire adds $75,000 in interest costs.
• Real estate taxes — property taxes that accrue during the delay period
• Architectural and engineering fees — additional design fees needed after a loss (redesign, inspections, updated plans)
• Permit and inspection fees — costs to re-obtain permits or schedule additional inspections
• Legal and accounting fees — professional costs related to the loss and delay
• Advertising and promotional expenses — if the project is a commercial development, marketing costs continue during the delay
• Leasing commissions — if the delay causes the owner to miss a lease commencement date, leasing commissions may need to be restructured

Why soft costs matter: On a $5 million commercial project with $3 million in construction financing, a six-month delay from a major fire could easily produce $200,000–$400,000 in soft costs — in addition to the physical damage. Without the soft costs endorsement, these expenses are uninsured.

Flood Endorsement

Particularly important for projects in or near flood zones. An unfinished structure with open walls, incomplete roofing, and exposed materials is far more vulnerable to water damage than a completed building. Flood coverage can be added to the builders risk policy or purchased through NFIP or private flood markets.

Earthquake Endorsement

Essential for projects in seismic zones (California, Pacific Northwest, parts of the Midwest). Earthquake deductibles on builders risk are typically percentage-based — 5%–15% of the TIV — which can be substantial on large projects.

Testing Coverage

Covers damage to equipment and systems during testing and commissioning. When a new HVAC system, electrical system, or mechanical system is tested for the first time, malfunctions can cause damage to the system itself or to surrounding building components. Standard builders risk forms may not cover damage during testing.

Ordinance or Law

If a partial loss triggers building code requirements that increase reconstruction costs, the ordinance or law endorsement covers the additional expense — similar to the endorsement on standard commercial property insurance.

Debris Removal

Standard builders risk policies include some debris removal coverage, but the sublimit may be inadequate for major losses. A building collapse can generate enormous debris removal costs — sometimes exceeding the cost of the structural damage itself.

How to Quote Builders Risk

Information Needed

1. Project description — what is being built (commercial office, retail center, residential development, warehouse, renovation, etc.)
2. Total completed value — the total project cost including materials, labor, and installed equipment (this is the TIV)
3. Construction type — frame, masonry, non-combustible, fire-resistive, or mixed
4. Project location — full address for fire protection class, wind zone, flood zone, and seismic zone assessment
5. Project timeline — anticipated start date and completion date
6. Named insured — who is purchasing the policy (owner, GC, or both)
7. Additional insureds — owner, GC, subcontractors, lenders as their interests appear
8. Loss payee — typically the construction lender
9. Existing structure details (for renovations) — current building value, construction type, age, and current commercial property coverage
10. Subcontractor schedule — major subcontractors and their scopes of work
11. Prior builders risk claims — any claims on prior construction projects
12. Endorsements needed — soft costs, flood, earthquake, testing, partial occupancy
13. Contract requirements — the insurance provisions from the construction contract

Carrier Considerations

• Standard market carriers — Hartford, Travelers, CNA, Zurich, and Liberty Mutual write builders risk for standard commercial and residential projects. These carriers typically handle projects up to $25–$50 million in value.
• Specialty construction carriers — Zurich, Chubb, Swiss Re Corporate Solutions, and QBE handle larger and more complex projects. Projects over $50 million, complex infrastructure, and high-value developments often require specialty placement.
• Surplus lines — projects with unusual risk characteristics (coastal high-rise construction, projects in wildfire zones, renovations of historical buildings, projects with adverse loss history) may require surplus lines placement.

Quoting Tips

• Verify the TIV carefully. The total insured value should include all hard costs (materials, labor) and, if soft costs coverage is purchased, the associated soft cost exposures. Underreporting the TIV can trigger coinsurance penalties at claim time. Overreporting inflates the premium unnecessarily.
• Check the policy term against the realistic timeline. Construction delays are extremely common. Quote the policy with enough buffer to account for reasonable delays, or confirm that the carrier offers extensions at pro-rated premiums.
• Always discuss soft costs. On any project with construction financing, soft costs endorsements should be presented as essential, not optional. The interest expense alone during a delay can be enormous.
• Confirm transit and off-site storage coverage. Materials in transit and stored at off-site locations are a real exposure. Verify that the policy covers materials from the moment they leave the supplier until they're installed in the building.
• Review the theft provisions. Theft from construction sites is a persistent and growing problem. Verify that the policy covers theft without restrictive conditions, and discuss site security measures with the contractor.
• Coordinate with general liability coverage. Builders risk covers property damage to the construction project itself. It does not cover liability for injuries to workers (that's workers' comp) or injuries to third parties visiting the site (that's CGL). Make sure the overall insurance program is coordinated.

Claims Scenarios

Fire During Construction

A fire breaks out in a partially completed three-story commercial building due to a welding spark that ignites nearby insulation. Two floors are severely damaged. The builders risk policy covers:

• Physical damage to the structure and installed materials: $850,000
• Materials on site destroyed in the fire: $125,000
• Debris removal: $95,000
• Soft costs (loan interest during 4-month delay, additional architectural fees, permit costs): $210,000

Total claim: $1,280,000 against a $4.5 million project TIV.

Wind Damage to Open Structure

A severe thunderstorm produces 70 mph winds that collapse temporary scaffolding and damage the partially installed roof system on a warehouse project. The builders risk policy covers:

• Roof system repair: $175,000
• Scaffolding replacement: $45,000
• Water damage to interior materials from rain entering through the damaged roof: $60,000

Total claim: $280,000.

Theft of Copper and HVAC Equipment

Over a weekend, thieves strip copper wiring and remove three HVAC condensing units from a commercial building site. The builders risk policy covers the loss (assuming theft is a covered peril under the form):

• Copper wiring replacement (material and labor to re-install): $85,000
• HVAC equipment replacement: $42,000
• Project delay costs (soft costs endorsement): $35,000

Total claim: $162,000.

Frequently Asked Questions

What is the difference between builders risk and commercial property insurance?

Commercial property insurance covers completed, occupied buildings and their contents on a permanent basis. Builders risk covers buildings under construction on a temporary basis — from the start of construction until the building is completed and occupied. Once construction is complete and the owner takes occupancy, builders risk coverage ends and standard commercial property coverage begins. There should be no gap between the two.

Who typically buys builders risk — the owner or the contractor?

Either can purchase it, and the construction contract determines the responsibility. AIA standard contracts assign builders risk to the owner by default, but this is frequently negotiated. On larger commercial projects, owner-purchased builders risk is more common because it eliminates overlaps and simplifies the insurance program. On smaller projects, the GC often carries builders risk as part of their contract obligations.

How much does builders risk cost?

Builders risk premiums typically range from 1%–4% of the total project value, depending on construction type, location, project duration, and coverage extensions. A $2 million masonry commercial project might cost $15,000–$25,000 for the construction period. A $2 million frame residential project might cost $30,000–$50,000 due to the higher fire exposure of frame construction.

Does builders risk cover subcontractor work?

Builders risk covers the physical construction work performed by all parties — including subcontractors — as long as the work is part of the insured project. However, builders risk does not cover subcontractors' owned tools and equipment (they need their own inland marine coverage) or liability for injuries caused by their work (covered under their own CGL).

What happens if construction takes longer than expected?

Most builders risk policies can be extended for an additional premium, typically pro-rated based on the original policy cost. The extension must be requested before the policy expires — if the policy lapses during active construction, there is no coverage for that gap period. Always request extensions well in advance of expiration and factor potential delays into the original policy term when possible.