Builder’s Risk Insurance for Contractors

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Builder’s risk insurance is a specialized policy designed to protect buildings and materials during construction. Unlike liability insurance, which protects against injuries or property damage claims, builder’s risk insurance protects the structure being built and the materials used in the project.

This guide explains what builder’s risk insurance is, who typically carries it, what it covers, and when it is required for construction projects.

Builder’s risk insurance is a type of property insurance that covers a building while it is under construction or renovation.

The policy typically protects:

• The structure being built
   
• Materials and supplies on-site
   
• Materials stored off-site or in transit (depending on policy terms)
   

Coverage usually lasts for the duration of the project and ends once construction is completed.

Builder’s risk insurance can be purchased by several parties involved in a construction project.

Most commonly, the policy is purchased by:

• The property owner
   
• The general contractor
   
• The developer
   
• A project lender requirement
   

Who carries the policy often depends on contract language and project financing arrangements.

Builder’s risk policies generally protect against damage to the construction project caused by certain unexpected events.

Common covered risks include:

• Fire
   
• Theft or vandalism
   
• Weather-related damage such as wind or hail
   
• Certain types of water damage
   

Coverage typically applies to both the partially completed structure and construction materials.

Builder’s risk insurance does not cover every type of construction risk.

Common exclusions may include:

• Normal wear and tear
   
• Poor workmanship or defective materials
   
• Employee injuries
   
• Liability claims from third parties
   

These risks are typically covered by other policies such as general liability insurance or workers’ compensation.

Builder’s risk insurance and general liability insurance serve different purposes.

• Builder’s risk insurance protects the structure and materials during construction.
   
• General liability insurance protects against claims involving bodily injury or property damage caused by the contractor’s operations.
   

Many construction projects require both policies because they cover different types of risk.

Builder’s risk insurance is commonly required when:

• A project involves new construction
   
• Major structural renovations are performed
   
• A lender finances the construction project
   
• Contract documents require property coverage
   

Lenders often require builder’s risk insurance before releasing construction funds.

Several factors affect the cost of a builder’s risk policy.

Common pricing factors include:

• Total project value
   
• Length of the construction schedule
   
• Location of the project
   
• Type of structure being built
   
• Construction materials used
   

Higher-value projects and longer construction timelines generally increase insurance costs.

Construction contracts often specify:

• Who must purchase the builder’s risk policy
   
• Required coverage limits
   
• Which parties must be listed as insureds
   

Clear contract language helps prevent disputes if damage occurs during construction.

Some common misunderstandings include:

• Assuming general liability covers damage to the project itself
   
• Not verifying whether the owner carries builder’s risk insurance
   
• Failing to confirm coverage for stored materials or materials in transit
   
• Not reviewing policy limits against project value
   

These issues often become apparent only after damage occurs.

Contractors often manage builder’s risk exposure by:

• Reviewing project contracts carefully
   
• Confirming which party carries the policy
   
• Verifying coverage limits match project value
   
• Coordinating coverage with other insurance policies
   

Understanding builder’s risk requirements helps contractors avoid gaps in protection.

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