Builder’s Risk Insurance: What Contractors Need During Construction

Marcus Holloway, a Black general contractor running a $480,000 residential addition outside Charlotte, watched flames consume the partially framed second floor on a Tuesday morning. The cause was a power tool left charging overnight. His commercial general liability policy paid nothing toward the rebuild. The $180,000 to reframe and re-sheath came out of his retained earnings because no one had carried builder’s risk on the project.

Builder’s risk insurance is property coverage written specifically for structures under construction. It pays for fire, wind, theft, vandalism, and other physical damage to the building, materials on site, and (with endorsement) materials in transit between the supplier and the job site. The policy term matches the project duration, typically three to twelve months, and lapses when the project is complete and accepted by the owner.

Why CGL does not cover the structure

Commercial general liability is third-party coverage. It pays when your work injures someone, damages their existing property, or causes a covered legal claim. The “your work” exclusion in nearly every CGL policy specifically excludes damage to the project itself. If a torch-cutting accident burns down the partially built structure, CGL treats it as damage to your own product, which is not covered.

Builder’s risk fills that gap with first-party property coverage. The named insured is usually the contractor, the property owner, and the construction lender, all listed together so any of them can collect on a claim. If you carry strong general liability coverage already in place for contractor work, builder’s risk sits alongside it, not on top of it.

What builder’s risk covers

Standard policies cover physical loss to the structure under construction, materials and supplies stored on site, temporary structures like scaffolding and forms, and (with endorsement) materials in transit and at off-site storage. Causes of loss typically include fire, lightning, windstorm, hail, vandalism, theft of materials, and explosion. Some policies are written on a broader “all-risk” form that covers any sudden physical loss not specifically excluded.

Common exclusions include flood, earthquake, employee dishonesty, faulty workmanship by the contractor, mechanical breakdown, and damage caused by poor design. Flood and earthquake can usually be added back by endorsement for an additional premium.

What it costs

Builder’s risk premiums typically run about 1 to 4 percent of the total construction value, charged as a single premium for the project term. A $480,000 project might cost $4,800 to $19,200 depending on construction type, location, and whether flood and earthquake endorsements are added. Wood frame construction costs more than masonry because of fire risk. Coastal and wildfire-prone locations cost more than inland sites.

The policy limit should equal the completed value of the project, not the contract price. Many contractors under-insure because they buy coverage equal to their hard costs and forget that materials on site, finishings, and overhead all get added back in a total loss claim.

When contractors need it and who buys

The owner of the project usually designates who carries builder’s risk in the contract. On owner-occupied residential remodels, the homeowner’s existing policy may extend coverage to construction, but limits are often inadequate. On commercial projects and ground-up residential, the contract typically requires the general contractor to procure a project-specific builder’s risk policy with the owner and lender named as additional insureds.

Construction lenders will not release the next draw without a current certificate of insurance showing builder’s risk in force. If coverage lapses mid-project (most often because the project ran past the original term and no one extended it), the lender freezes funding until coverage is back in place.

If you are a general contractor reviewing what coverages you actually carry, pull every active project’s contract and confirm a current builder’s risk certificate is on file. Lapsed coverage during a fire or theft event is the worst time to discover the gap.

Frequently asked questions

Does builder’s risk cover the contractor’s tools?

No. Builder’s risk covers the structure, materials, and items intended to become part of the finished building. The contractor’s tools, mobile equipment, and temporary jobsite vehicles are covered under inland marine or contractor’s equipment policies, not builder’s risk.

What happens if the project runs past the original policy term?

The policy lapses. Most builder’s risk policies allow extensions for an additional premium, but the contractor or owner must request the extension before the original term expires. Lenders monitor expiration dates and freeze draws when coverage lapses.

Who pays the deductible if there is a loss?

The contract between the contractor and owner usually specifies who pays. Deductibles typically run $1,000 to $25,000 depending on policy size, and on larger projects they are often higher for wind and hail. The named insured listed first on the policy is generally responsible for the deductible.

Can a homeowner’s policy cover an addition or major remodel?

Sometimes. Homeowners insurance often extends limited builder’s risk coverage to small additions and remodels, usually capped at 10 to 20 percent of the dwelling limit and only when the homeowner pulled the permit. For projects over a few hundred thousand dollars, a separate builder’s risk policy is the standard expectation.

When does the policy actually end?

The policy ends at the earlier of: the original expiration date, the date the structure is occupied for its intended use, the date a certificate of occupancy is issued, or the date the project is accepted by the owner. After that, the property switches to a permanent commercial property or homeowners policy. There is no gap protection between the two unless the contractor explicitly arranges it.