Builders Risk Insurance: Who Needs It and What It Covers

Builders risk insurance covers a building, its materials and temporary works while the project is being built or renovated. The owner or the general contractor buys it, whichever the construction contract names, and it ends at the first trigger in the policy, such as the building being occupied without permission or 90 days passing after completion. For a California project, start a builders risk quote with the project value, construction type and schedule.

The policy also covers foundations, site work and materials waiting to be installed, and it usually insures everyone working on the project under one policy. A standard commercial property policy fits construction poorly, which is why builders risk is written as a specialized inland marine policy.

What is builders risk insurance?

Builders risk insurance, also called course of construction insurance, is an inland marine policy that covers a project from the start of construction until the owner accepts the work. This guide follows the AAIS Builders' Risk Coverage, Scheduled Jobsite Form, Comprehensive Form (IM 7050 07 20). It is an "open perils" policy: any direct physical loss is covered unless the form excludes it. The limit is normally set at the project's final completed value.

Who needs builders risk insurance, and who pays?

Anyone with money at risk in a construction project needs it, including owners building new, adding on or renovating. The project owner or the general contractor usually buys it. The construction contract says who is responsible for buying it and normally names every party the policy covers: the owner, the contractor, subcontractors of every tier, construction managers and lenders. One policy for everyone makes a claim much simpler than sorting it out across each party's own insurer.

There is also a legal reason for one shared policy: an insurer cannot subrogate against its own insured. The AIA A201 General Conditions build on this rule. The owner and contractor waive their rights against each other and their subcontractors for damage covered by the project's property insurance.^[1]

What does builders risk insurance cover, and what is excluded?

Builders risk covers the permanent structure and the materials that go into it (buildings, foundations, grading, fixtures), plus temporary works such as scaffolding and forms, often with a sublimit. It reaches further than a standard property policy:

The common exclusions are earth movement, flood, ordinance or law, defects and errors in design or workmanship, and delay in completion. Contracts often require earthquake and flood coverage, which is added back by endorsement, usually with a higher deductible. The defective work exclusion confuses people most. The contractor's defective work itself is excluded, but damage that the defective work causes is often still covered. A badly welded beam that starts a fire is a good example: the fire damage can be covered even though the beam is not.

When does coverage begin and end?

Coverage runs while the building is under construction, and it ends at the first of these events: the policy expires or is canceled, the owner accepts the building, your insurable interest ends, you abandon construction, or 90 days pass after completion. The end date is where projects most often lose coverage.

Set the policy term to cover the whole construction period plus a buffer for delays, instead of buying an annual policy and planning to renew it. Insurers can refuse to extend a policy or extend it only at a much higher rate. As IRMI puts it: "Imagine asking for a policy extension during hurricane season or after the insurance company just paid out a sizable loss!"^[2]

How much does builders risk insurance cost?

Builders risk usually costs 1% to 4% of the total completed project value, which is $1.00 to $4.00 per $100 of value, according to Insureon, a small business insurance marketplace.^[3] On a completed value policy, the premium is the estimated completed value multiplied by a rate per $100, and the rate already accounts for the exposure growing as the building goes up. Construction type and location decide where a project falls in that range. For example, a $2,000,000 completed value at a $1.00 rate gives a term premium of $20,000. For California minimum premiums and examples, see builders risk insurance cost in California.

A higher base deductible lowers the premium. Tell the insurer about change orders during the project so the limit keeps pace with the real value, because losses are paid at the replacement cost of the damaged work, including overhead and profit.

Does builders risk cover delays and lost income?

Not automatically. The base policy does not cover delay losses, apart from a small Expediting Expenses coverage. Delay in completion coverage, added by endorsement, pays the owner's lost rent on a leased project, lost net income (like business income coverage) and soft costs such as interest, taxes and insurance premiums. A waiting period shown on the Delay In Completion Schedule (IM 7080 07 20) applies first, and the deductible is measured in days, not dollars.

This guide is for educational purposes and summarizes standard ISO and AAIS policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

Setting the right builders risk term

Builders risk covers a project and its materials on an open perils basis from groundbreaking until the owner accepts the work, which no standard property policy does. The contract decides who buys it and who is insured, and coverage ends at the first trigger, not on the expiration date. Check each trigger against your build schedule and set the term long enough to outlast your worst-case delay.