Builder's Risk Insurance for Construction Projects
By Infinity Lending ServicesUpdated March 4, 20266 min read
Quick Answer
Builder's risk insurance covers damage to a structure under construction from fire, wind, theft, vandalism, and other perils. It is required by all construction lenders and typically costs 1-3% of the total construction value annually.
Table of Contents
What Is Builder's Risk Insurance?
Builder's risk insurance (also called course of construction insurance) protects buildings under construction from damage caused by covered perils. It covers the structure, materials, and sometimes equipment from the start of construction through completion.
What It Covers
Standard Coverage
- Fire and lightning
- Wind and hail
- Theft of materials and fixtures
- Vandalism and malicious mischief
- Vehicle and aircraft impact
- Explosion
- Smoke damage
Optional Endorsements
- Flood coverage
- Earthquake coverage
- Materials in transit
- Materials in storage off-site
- Soft costs (additional interest, permit fees due to delays)
- Debris removal
What It Does Not Cover
- Faulty workmanship or design
- Employee theft (requires separate fidelity bond)
- Normal wear and deterioration
- Mechanical breakdown
- War and nuclear hazard
- Government action
Cost Factors
Builder's risk premiums are based on:
- Total construction value: Higher value = higher premium
- Construction type: Frame, masonry, fire-resistive
- Location: High-risk areas cost more
- Project duration: Longer projects = higher cost
- Coverage limits and deductibles: Higher limits increase premium
- Security measures: Fencing, cameras, and lighting can reduce costs
Typical Costs
- Residential new construction: 1-3% of construction value annually
- Renovation projects: 1-4% depending on scope
- Commercial projects: Varies widely based on size and risk
Lender Requirements
Construction lenders typically require:
- Coverage equal to or exceeding the loan amount
- Lender named as loss payee
- Policy effective before closing
- Coverage for the full construction period
- Adequate deductibles (usually $5,000-$25,000)
Tips for Builders
- Get quotes early: Insurance availability and pricing vary
- Match coverage to timeline: Ensure policy term covers your full build schedule
- Review exclusions: Understand what is not covered and add endorsements if needed
- Document everything: Photos and records support claims if damage occurs
- Require subcontractor insurance: Ensure all subs carry their own liability coverage
Related Reading
Key Takeaways
- ✓Builder's risk is required for all construction loans
- ✓Coverage protects the structure and materials during construction
- ✓Costs typically run 1-3% of construction value annually
- ✓Review exclusions carefully and add endorsements as needed