Builder’s Risk Insurance

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What is builder’s risk insurance?

Builder’s risk insurance, also known as course of construction insurance, is first-party insurance that helps protect the policyholder from damage that may occur during the construction project.

What is typically covered in builder’s risk insurance?

A builder’s risk policy typically covers structures or buildings under construction, but can also cover materials and supplies used as part of the construction project. The perils covered may include vandalism, fire, theft, lighting, hail and explosions. Coverage varies depending on the carrier, and the terms of each individual policy, but liability and bodily injury are not covered under builder's risk insurance.

Are there optional coverage endorsements we can add to a builder’s risk policy?

There are optional coverage endorsements you can add, but they vary depending on the provider. The most common endorsements are to protect a policyholder from catastrophic exposures such as wildfires, hurricanes, windstorms and earthquakes, to soft costs, extra expenses, ordinance or law, contractor’s equipment, etc.

Builders risk insurance is flexible and every project is different, so there are a number of coverages that can be added as noted above. Your insurance policy will always outline the items noted below to detail what is being covered, what is not being covered and under what circumstances coverage applies.

  • Property covered
  • Property not covered
  • Perils covered
  • Perils not covered

Who needs builder’s risk Insurance?

Builder’s risk insurance is considered an essential coverage for contractors, project owners and any stakeholders with a financial interest in the construction project. While it may not be legally required, it is designed to protect the financial interests of those committed to the project. If the project is financed, many lenders require builder’s risk insurance.

Depending on the state and/or city, the ability to receive permits/licenses may be contingent upon having builder’s risk insurance. It is considered critical coverage because during the course of construction, projects are at risk for damages that can be catastrophic to a project’s completion and budget. Without builder’s risk protection, a contractor is vulnerable to a number of undesirable outcomes that could impact their overall business.

How are the coverage limits decided?

The coverage limits on a builder’s risk policy must accurately reflect the total completed value of the structure (all materials and labor costs, excluding land value). The construction budget is the best source for determining the appropriate limit of insurance. 

Sublimits and additional coverages are important considerations as well. Sublimits surrounding natural disasters may vary, but it is important to consider where a project is located, and the unique attributes of each project, to determine additional coverages and/or sublimits that may be needed. Depending on the carrier, there may be significant penalties if the project is not insured at its proper value or underinsured. Consulting with your advisor will help you make the right decision for the project's needs.

If the project becomes bigger or more costly, can I increase my coverage?

If the value of the project increases, limits can and should increase as well. There is usually an additional premium associated with the additional coverage. Limits cannot exceed the insurance program’s limits, but the increase up to those limits help to prevent the possibility of being underinsured. If the value of your project increases, you should notify your risk advisor/underwriter to discuss all options available.

How long does a builder’s risk insurance policy last?

Coverage is usually written for the duration of the project build. This can be 12 months, 24 months, 30 months or longer. The policy is designed to cover the project under construction. Project delays may necessitate the issuance of an extension. Term limits and extensions are subject to program limitations and underwriter approval.

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Procore Risk Advisors (PRA) is a brand of Procore Insurance Services, Inc. Surety and insurance products provided by Procore Insurance Services, Inc., 221 W 6th Street, Suite 1800, Austin, TX 78701. Licensing Information