Builder’s Risk Insurance: How It Works, Cost and Best Providers

Builder’s risk insurance protects property and materials during a construction or renovation project. It can pay out in case of fire, vandalism or other unexpected events. If you have a financial stake in a construction project, you should have builder’s risk insurance coverage.

This is a specialized kind of business insurance. The policyholder will likely need to work with an insurance agent to compare quotes and get coverage. A construction agreement should specify whether you, a contractor or someone else buys the policy.

Who needs builder’s risk insurance?

Builder’s risk insurance provides important coverage for anyone with a financial interest in a property that’s being built or renovated, including:

• Building owners.

• Architects or engineers involved with the project.

• Contractors or subcontractors.

Depending on the construction contract, either the general contractor or property owner generally has to purchase builder’s risk insurance. The other party and subcontractors may be listed as additional insureds.

What does builder’s risk insurance cover?

In general, builder’s risk insurance covers the property on construction sites when it’s damaged or destroyed by fire, wind, vandalism, vehicle collisions or other accidents. Some policies also cover construction materials stored off-site and cleanup costs like debris removal.

But there’s no standard template for a builder’s risk policy, which is different from many other types of business insurance. As a result, coverage can vary a lot by provider. Here's what to look for in your policy:

Materials that can be covered if they’re damaged or destroyed: Generally, builder’s risk insurance policies will cover the building that’s being constructed or renovated and materials that you store off-site that are damaged or lost in transit to the construction site.

Some policies also include:

• Documents and data: Blueprints, specifications and other documents that are damaged or lost.

• Temporary structures: Such as scaffolding or signs.

• Soft costs: Such as architect fees, penalties owed to the local government and additional real estate taxes.

Other covered costs: Builder’s risk insurance can also reimburse you for the costs of cleaning up after damage occurs, such as debris removal and pollutant cleanup. If you’re repairing a building that had previously received green energy certifications, your policy may even cover those recertification fees.

Covered causes of loss: Builder’s risk policies usually provide all-risks coverage. That means they cover property damage caused by anything except what the policy specifically excludes. Common exclusions include floods and earthquakes, though you can sometimes purchase add-on coverage for those risks.

What’s excluded by builder’s risk insurance?

Builder’s risk policies generally don’t cover damage to:

• Land.

• Trees, shrubs and vegetation on the property. 

• Roads or walkways. 

• The construction company’s tools and equipment.

And builder’s risk insurance policies often exclude causes of loss, such as:

• Employee theft.

• Work vehicles.

• Damage from earthquakes and flooding.

• Manufacturing defects or flaws in workmanship or design.

• Ordinary wear and tear.

Once construction is complete, a builder’s risk policy ends. After that point, you’ll need:

• Business property insurance, to cover the structure and its contents in case of fire, theft, hail or other accidents.

• Inland marine insurance, to cover materials and products while they’re in transit.

Where to get builder's risk insurance

Builder’s risk insurance is highly specialized, so not every business insurance company sells it. You also generally can’t get a quote online — you’ll likely need to work with an insurance agent, ideally one who has some familiarity with the construction industry.

Here are the top insurance companies for builder’s risk insurance:

The Hartford includes coverage for:

• Up to $100,000 for blueprints, schematics and other valuable documents that are associated with the project.

• Up to $100,000 for debris removal.

• Contract penalties up to $50,000 if you owe fines or legal fees as a result of delays in the construction project.

• Expedited costs up to $25,000 if you experience a loss and need to expedite new supplies or quickly hire additional labor.

• Trees, shrubs and grass.

The Hartford doesn’t offer online quotes for builder’s risk insurance, so you’ll need to contact a local agent. Read NerdWallet's review of The Hartford business insurance.

Chubb is a longstanding insurance company that offers virtually every type of business insurance. Their builder’s risk insurance policy includes coverage for:

• Projects abroad, as long as the company is U.S. based.

• Green endorsements. 

• Tailored policies for infrastructure projects like bridges and tunnels.

Like The Hartford, Chubb doesn’t offer online quotes for builder’s risk policies. You can use Chubb’s website to find an insurance agent near you. Read NerdWallet's review of Chubb business insurance.

Travelers builder’s risk insurance includes:

• The value of covered property based on replacement value, not actual cash value.

• Both permanent fixtures and temporary fixtures, such as signs and scaffolding.

• Customized soft costs coverage or the Travelers default of $100,000 in soft costs coverage limits.

• Automatic green building coverage.

Travelers insurance is sold through a network of independent insurance agents. Use the Travelers website to find an agency near you. Read NerdWallet's review of Travelers business insurance.

How much does builder’s risk insurance cost?

The cost of builder’s risk insurance typically ranges from 1% to 5% of the total construction budget, according to the Massachusetts-based Stanton Insurance Agency, Inc. Online brokerage Insureon says the average cost of the builder’s risk policies it sells is $105 per month or $1,259 per year.

In addition to the project cost, the following factors can affect the cost of a builder’s risk insurance policy:

• Location.

• Timeline.

• Size of the construction site.

• Expertise and experience of the contractors and subcontractors who will be handling the project.

• Amount of coverage.

• Whether the policy will cover the actual cash value of damaged property or the replacement value. (The latter usually results in higher payouts but also higher premiums.)

• Quality of materials used in the construction.

• Logistics of the project, such as where construction materials are stored.

Before getting a business insurance quote for builder’s risk insurance, carefully evaluate your construction budget. This is the total value of the completed building (excluding land value) plus materials costs and labor costs.

Depending on what your policy covers and any add-on coverage that you buy, you should also estimate the soft costs of construction delays. This can help you determine appropriate coverage limits.

» MORE: Business insurance companies: How to compare options