Construction projects, whether residential or commercial, are complex undertakings with numerous risks. From natural disasters to theft, the range of potential threats to your project is vast. This is where builder’s risk insurance becomes essential, offering protection to safeguard the financial integrity of your construction investment.

Understanding the ins and outs of a builder’s risk policy coverage can help ensure you’re fully protected from unexpected events. In this article, we’ll explore what builder’s risk insurance is, why you need it, and the different types of policies available.

What is builder’s risk insurance?

Builder’s risk insurance, also known as course of construction insurance, is a specialized policy designed to cover a building project during the construction phase. This temporary coverage protects the building, materials, and equipment from physical damage due to covered perils such as fire, vandalism, or severe weather.

A builder’s risk policy coverage is essential for both residential and commercial construction, whether you're a contractor, property owner, or developer. It provides peace of mind, knowing your project is safeguarded against unforeseen events.

Why is builder’s risk insurance important?

Why do you need builder’s risk insurance? Builder’s risk insurance plays a crucial role in construction projects for several reasons. Without the builder’s risk insurance, unexpected events could result in costly delays and potentially jeopardize the entire project.

Protects against financial loss

Damage to a building during construction can lead to significant expenses.

Covers materials and equipment

Any loss of essential building materials due to theft or natural disasters is included.

Meets contractual requirements

Many lenders and clients require a builder’s risk insurance quote before approving a loan or signing a contract.

When should builder’s risk insurance be purchased?

Timing is critical when purchasing a builder’s risk insurance. Ideally, the policy should be in place before any construction materials are delivered to the site or work begins. This ensures the full scope of the project is covered from start to finish.

• Pre-construction: Purchase the policy before breaking ground to cover stored materials and equipment.

• During construction: The policy remains active for the entire duration of the project.

• Post-construction: Depending on the terms, the policy can extend slightly beyond project completion for any last-minute risks.

Who buys builder’s risk insurance?

Builder’s risk insurance can be purchased by several parties involved in the construction project, depending on the agreements in place:

Project owners

The property owner, whether for a commercial or residential project, is often the one who purchases builder’s risk insurance. As the primary financial stakeholder, the owner has the most to lose if an unexpected event causes significant damage.

By securing this policy, the owner ensures that their investment in the project is protected from various perils, such as fire, theft, or severe weather. Additionally, owners may include the contractor as a named insured on the policy for extra protection.

Contractors

General contractors or builders may also opt to purchase builder’s risk insurance. They often take this step to safeguard their materials, equipment, and labor during the course of the construction.

By having this policy, contractors ensure that their hard work isn’t lost to unforeseen risks, such as vandalism or accidents on the job site. It also helps contractors fulfill their obligations under the construction contract, as they are often required to show proof of insurance coverage.

Lenders

Financial institutions that provide funding for construction projects, such as banks or private lenders, often require proof of builder’s risk insurance before releasing funds. This ensures that the loan they are extending is secured, and that in the event of property damage during construction, the project can be completed.

Lenders may stipulate in the loan agreement that the project owner or contractor must purchase the policy to protect the financial interests of all parties involved.

What does a builder’s risk insurance cover?

A builder’s risk insurance policy typically covers physical damage to the structure during the course of construction.

Here are some of the most common types of coverage:

• Fire, lightning, and explosion

• Vandalism or theft

• Weather-related events such as windstorms, hail, or flooding (if applicable)

The exact scope of coverage may vary, so it’s important to review your builder’s risk policy coverage carefully with an insurance expert.

Builder’s Risk Insurance Policy Coverages

Builder’s risk insurance policies are versatile and can be tailored to cover different types of construction projects.

Here are the most common categories:

Commercial & residential new construction insurance

This policy covers new construction projects, from single-family homes to large commercial buildings. It ensures the building, materials, and on-site equipment are protected against covered risks.

Remodeling insurance

When upgrading or renovating an existing structure, the builder’s risk insurance can cover both the current building and any new additions or improvements made during the project.

Installation floater insurance

This type of coverage protects specific materials or equipment being installed at the construction site, such as HVAC systems, plumbing, or electrical work.

What are the benefits of a builder’s risk coverage?

Builder’s risk coverage offers numerous benefits that can help protect your construction project from financial loss:

Customized coverage

One of the greatest advantages of builder’s risk insurance is its flexibility. Policies can be tailored to fit the exact needs of a project, whether it’s a small residential build or a large commercial construction.

Depending on the specifics of the project, coverage can extend to different types of risks, including theft, vandalism, natural disasters, and more. This customization ensures that every aspect of the construction is protected, providing comprehensive protection that aligns with the project’s scope.

Coverage for soft costs

In addition to covering physical damage, many builder’s risk policies also extend protection to soft costs—indirect expenses that arise due to delays or disruptions.

These can include:

• Project delays caused by a covered peril, which might require additional labor or extended project timelines.

• Lost income that occurs if the project fails to meet deadlines, impacting potential rental income or sales.

• Legal fees or expenses related to resolving disputes or contractual issues that stem from covered incidents.

Protection for high-value equipment

Construction projects rely on a variety of high-value machinery and tools, and these assets are often at risk of being damaged, stolen, or lost. Builder’s risk insurance provides coverage for these essential items, ensuring that the construction crew has the equipment they need to keep the project moving forward.

Whether it’s cranes, generators, or specialized tools, this coverage protects against unexpected losses that could otherwise halt the progress of the build.

Builders Risk Insurance Policy Types

There are several types of builder’s risk policies, each designed to suit different project needs:

Single Project/One-Shot Policy

This policy is for one-time, individual construction projects. It’s a straightforward option for builders handling smaller, single-phase projects.

Reporting Form Policy

For builders or developers working on multiple projects simultaneously, this policy allows you to report completed projects over time for ongoing coverage.

Blanket Deposit Premium Policy/Annual Reporting Policy

This type offers coverage for multiple projects under a single policy, making it ideal for larger companies with numerous ongoing projects.

Blanket Installation Policy

This policy covers materials or equipment being installed across various locations, providing broad coverage for ongoing installation work.

How much does a builder’s risk insurance cost?

The cost of a builder’s risk insurance depends on several factors, such as the value of the project, location, and the types of coverage included. To get an accurate estimate, it’s important to request a builder’s risk insurance quote from a reputable provider, such as Hotchkiss Insurance.

Choosing The Right Builder’s Risk Insurance Provider

A builder’s risk insurance is an essential form of protection for any construction project. By understanding your options and choosing the right policy, you can ensure the safety of your investment against a wide range of risks.

When choosing a provider for builder’s risk insurance, it’s important to select an experienced and trustworthy company that understands the needs of your project. Hotchkiss Insurance, based in Texas, is a leading insurance agency offering builder’s risk insurance and other business insurance policies tailored for home builders, independent trade contractors, general contractors, and commercial contractors. With their expertise, you can find the right coverage to safeguard your construction project from start to finish. Contact them today!