When Do You Need Builders Risk Insurance?

Builders risk insurance, also known as course of construction insurance, provides coverage for buildings and structures during construction or renovation. This specialized property insurance protects against risks unique to construction sites, safeguarding the financial investment from inception until completion. It addresses the heightened vulnerability of properties during this phase, where exposures to damage are often greater. This policy helps ensure projects continue without significant financial disruption if unforeseen events cause damage.

What Builders Risk Insurance Covers

Builders risk insurance typically covers direct physical loss or damage to the building or structure under construction. This includes building materials and supplies intended for permanent installation, whether on the job site, in transit, or stored. Coverage can also extend to temporary structures, like scaffolding or fencing, and debris removal costs from a covered loss.

Common perils covered include fire, theft, vandalism, lightning, wind, hail, explosions, and vehicle collisions. Some policies may offer extensions for “soft costs,” which are indirect expenses from construction delays due to a covered loss, such as additional interest on loans or real estate taxes. However, builders risk policies generally exclude damages from faulty design, poor workmanship, mechanical breakdown, wear and tear, or intentional damage. Liability for bodily injury or property damage to third parties usually falls under general liability insurance.

Project Types and Circumstances Requiring Coverage

Builders risk insurance is generally needed for new construction projects, regardless of size. This applies to any ground-up building project, from custom homes to large commercial developments. The policy protects the investment in the entire structure as it takes shape, along with all associated materials.

Major renovations or additions to existing structures also frequently necessitate this coverage. Significant structural changes, extensive interior remodels, or substantial additions increase a property’s risk profile during construction. Projects involving minor cosmetic updates, such as repainting or re-carpeting, typically do not need builders risk insurance. However, projects involving changes to the building’s footprint or structural integrity usually do.

The financial value and scale of a project are significant factors. Higher-value projects involve greater financial risk, making builders risk insurance more important to protect substantial investments. While there is no universal threshold, projects with a total completed value exceeding a few thousand dollars often warrant this specialized coverage. Longer project durations also mean extended exposure to potential risks, increasing the likelihood that builders risk insurance will be a prudent choice.

Key Stakeholders and Their Requirements

Various parties involved in a construction project influence the need for builders risk insurance. Financial institutions, such as banks providing construction loans, almost always require builders risk insurance as a condition for funding. They do this to protect their financial investment in the property, ensuring their collateral is covered in case of damage during construction. Lenders typically require themselves to be listed as a loss payee or mortgagee on the policy.

General contractors often include requirements for builders risk coverage in their contracts with property owners or subcontractors. This contractual obligation helps protect all parties involved, ensuring financial responsibility for property damage. The construction contract usually specifies who is responsible for purchasing the policy.

Property owners frequently secure this insurance to protect their personal investment, even when not required by a lender or contractor. As the party with the most to lose if the structure is damaged or destroyed, owners often benefit from having direct control over the policy, its limits, and the claims process. This proactive approach mitigates financial risks associated with unforeseen events during construction.

Coverage Start and End Points

The timing of builders risk insurance is crucial to ensure continuous protection. Coverage typically begins at the start of construction, or when building materials are delivered to the job site. Some policies may become effective on the date contracts are signed, but it is important to confirm the specific trigger for coverage inception within the policy documents.

Builders risk coverage is temporary and concludes when specific milestones are met. Common events that trigger the end of coverage include the project reaching substantial completion, the issuance of a Certificate of Occupancy, or the owner or tenant occupying the property, even if partially. Coverage may also cease if the property is sold, the policy term expires without renewal, or construction is abandoned. It is important to transition to a permanent property insurance policy, such as a homeowner’s or commercial property policy, once builders risk coverage ends to avoid gaps in protection.