If you're building a new structure or doing major renovations, here's something that catches people off guard: your regular property insurance won't cover the project while it's under construction. That shiny new commercial building you're putting up? Not covered. That kitchen renovation that's tearing your house down to the studs? Also not covered. This is where builder's risk insurance comes in, and it's more important than most people realize.
Think of builder's risk as a temporary safety net specifically designed for construction projects. It protects your investment from the moment construction starts until the project is complete. Whether you're a contractor managing multiple builds, a homeowner adding a second story to your house, or a developer breaking ground on a commercial property, this coverage can save you from devastating financial losses.
What Exactly Is Builder's Risk Insurance?
Builder's risk insurance, sometimes called course of construction insurance, is a specialized property policy that covers buildings, structures, and materials while they're under construction or renovation. Unlike your standard property insurance that protects finished buildings, this policy is designed specifically for projects in progress.
The coverage is comprehensive. It protects the structure being built, all the building materials whether they're on-site or in transit, equipment being used for construction, and even temporary structures like scaffolding, fencing, and construction trailers. If you've got a stack of lumber sitting in your construction yard or HVAC units waiting to be installed, they're covered. If someone steals your copper wiring or a storm damages your partially completed roof, you're protected.
The policy typically covers damage from fire, lightning, wind, hail, theft, vandalism, and certain types of water damage. Some policies also offer optional coverage for things like earthquakes, floods, and even the cost of debris removal after a covered loss. You can also add profit coverage, which reimburses contractors for the profit they would have earned if the project hadn't been delayed by a covered event.
Who Actually Needs This Coverage?
Here's the thing: anyone with money on the line in a construction project should consider builder's risk insurance. That includes more people than you might think.
General contractors and construction companies are the obvious candidates. For them, it's often non-negotiable because clients, lenders, or local building codes require proof of coverage before work begins. But homeowners doing major renovations need it too, and this surprises a lot of people. If you're adding an addition, doing a major remodel, or building a custom home, your standard homeowners policy has exclusions for work being done on the property. Without builder's risk coverage, you're personally liable for any damage that occurs during construction.
Property developers, real estate investors doing fix-and-flips, and subcontractors also benefit from this coverage. Even lenders often require it as a condition of financing because they have a financial interest in protecting the project until it's complete. The policy can name multiple parties as insured, which means the property owner, general contractor, subcontractors, and the bank can all be protected under one policy.
How Much Does Builder's Risk Insurance Cost?
Most builder's risk policies cost between 1% and 4% of your total construction budget. For a $250,000 renovation, you're looking at somewhere between $2,500 and $10,000 for the entire policy period. On a monthly basis, small to mid-sized projects typically run $100 to $300 per month, with annual costs averaging around $1,200 to $1,500 for smaller projects.
What affects your premium? Five main factors: the type of project, your location, the construction methods being used, any optional coverage you add, and the deductible you choose. A wood-frame residential project in a hurricane zone will cost more than a steel-frame commercial building in a low-risk area. Projects in high-crime areas where theft is common will have higher premiums. And if you're building in an area prone to floods or earthquakes, you'll pay extra for that additional coverage.
The good news for 2025? The builder's risk market has stabilized after some tough years of rate increases. More insurance companies are willing to write these policies now, which has helped keep rates relatively flat. That said, construction costs themselves have risen sharply over the past few years, which means project values are higher and premiums reflect that. Make sure you're insuring for the accurate replacement cost, including those inflated material and labor prices, or you could end up underinsured.
How Builder's Risk Policies Actually Work
Builder's risk insurance is temporary by design. You can purchase coverage for 3, 6, 9, or 12 months, and you can renew it as many times as needed until the project is finished. The policy ends when construction is complete, when the building becomes occupied, or when the policy term expires without renewal, whichever comes first.
Coverage limits are typically set based on the completed value of the project. If you're building a structure that will be worth $500,000 when finished, that's what you insure it for. Deductibles usually range from $500 to $5,000, depending on the project size and your insurer's requirements. Some policies include automatic inflation protection, which adjusts your coverage limit if construction costs rise during the project.
One important detail: builder's risk typically doesn't cover everything. Employee injuries are covered by workers' compensation, not builder's risk. Liability claims if someone gets hurt on the job site require general liability insurance. And builder's risk won't cover faulty workmanship, design errors, or mechanical breakdown. It's strictly for physical damage to the project from covered perils.
Getting Coverage and Completing Your Project
When you're ready to buy builder's risk insurance, you'll need detailed information about your project: the total construction value, the project timeline, the location and address, the type of construction, and what materials you're using. Your insurer will want to know who's doing the work and whether you have other relevant insurance like general liability or workers' comp.
For contractors, the cost of builder's risk is almost always passed along to the client as part of the construction contract. For homeowners managing their own projects, you can purchase it directly from insurance companies that specialize in construction coverage. Either way, expect your lender, your contractor, or your local building department to require proof of coverage before you break ground.
The bottom line? Builder's risk insurance exists because construction is inherently risky. Materials get stolen. Storms damage unfinished structures. Fires happen. And when they do, someone has to pay to fix the problem and get the project back on track. Builder's risk ensures that someone isn't you paying out of pocket. Whether you're building from the ground up or renovating an existing structure, this coverage protects your investment until the moment you're ready to move in or open for business.
