Builders risk insurance
Builders risk insurance is temporary property coverage for a building or structure while it is being built, renovated, or repaired. It can pay for covered physical loss or damage to the work, materials, supplies, and certain temporary structures, within the policy's limit, covered causes of loss, deductible, exclusions, and end date.
Also called: builder's risk insurance, builders risk
If a fire, storm, theft, or collapse damages a project before it is finished, builders risk pays to repair or replace the covered work and materials, but only during the construction period, according to the Connecticut Insurance Department glossary (opens in a new tab). It protects the project itself, not people hurt there. Check the declarations page for the project limit and dates, then the policy's causes of loss, deductibles, exclusions, and the event that ends coverage.
How a builders risk claim is paid
On a completed-value builders risk form, the limit should match what the project will be worth when it is finished, not what has been built to date. A limit below that value can cut the payment in proportion. Take a $60,000 loss with a $100,000 limit, a $120,000 total estimated completed value, and a $1,000 deductible, as worked in a public ISO builders risk endorsement example (opens in a new tab).
Hover or tap a row to highlight it.
| Step | Amount |
|---|---|
| Limit divided by completed value ($100,000 ÷ $120,000), rounded as in the example | 0.833 |
| Covered share of the loss (0.833 × $60,000) | $49,980 |
| Minus the deductible | $1,000 |
| Insurer pays | $48,980 |
| Policyholder bears (deductible plus the $11,020 shortfall) | $12,020 |
The policyholder absorbs the deductible and the $11,020 shortfall because the limit sat below completed value. This illustrates the formula, not an average claim; the actual payment depends on the policy's valuation and coinsurance wording, sublimits, exclusions, and endorsements. Full completed value is required for new structures in Oregon's public builders risk contract clause (opens in a new tab) because a lower limit can reduce payment proportionally.
The main choices on a builders risk policy
Builders risk is a label for several policy forms, not one uniform contract, and each of these choices changes what a claim pays.
Completed value or reporting basis. A completed-value form sets the limit and premium at inception on the finished project's estimated value, and increases in that value should be endorsed onto the policy, according to the ISO builders risk reporting form (opens in a new tab). A contractor with several projects may instead report the property exposed during each period, which that ISO form sets at 30 days.
Deductible. A higher deductible leaves more of each covered loss with you and may lower the premium by a policy-specific amount. A $250,000 per-loss cap on the standard deductible appears in Oregon's contract clause, one public owner's requirement rather than a market range.
Causes of loss. A policy may list named perils or use a broader special form. Fire, wind, theft, collapse, breakage, lightning, hail, explosion, and vandalism are commonly covered, while flood and other natural disasters depend on the area and the policy, according to Travelers (opens in a new tab).
Transit and temporary storage. Materials can be covered at the job site, in transit, or in temporary storage, each with its own limits. Transit and temporary-location limits of $100,000, $250,000, or $500,000 are the choices on one public builders risk application (opens in a new tab), options on that form rather than universal limits.
Soft costs and delay in completion. Indirect costs from covered damage and delay, such as additional interest, lost rents, or permit costs, are covered only with a stated limit or endorsement. One Travelers product includes an automatic $100,000 soft-cost limit that can be increased.
When coverage ends. Coverage stops at the event the policy names, which may be completion, occupancy, acceptance, delivery, a certificate of occupancy, expiration, or cancellation. In New York, DFS Circular Letter No. 19 (opens in a new tab) allows builders risk to be written as inland marine until the earliest of tenant occupancy, delivery to or acceptance by the owner, completion, or a certificate of occupancy or completion.
Where you meet the term
Builders risk is business property coverage, often written as inland marine insurance, for new construction, renovation, additions, and installation work. You will see it on a quote or binder, on the declarations page under covered property, job site, or completed value, and in the policy's causes of loss, exclusions, and conditions on valuation, occupancy, and completion. It also shows up in construction contracts, lender requirements, renewal notices asking for updated values, and requests for a certificate of insurance.
It is a different policy from homeowners insurance, which is built for an occupied residence and may restrict construction-related property. It also does not replace general liability insurance, workers' compensation insurance, commercial auto, or professional liability insurance, which address injuries and lawsuits rather than damage to the project. Land is outside it too: a builders risk definition reproduced in a federal court opinion (opens in a new tab) expressly excludes land.
Questions to ask an agent or insurer
- What is the total estimated completed value, and does the limit include labor, materials, permits, overhead, profit, debris removal, and approved change orders? A limit below completed value can trigger a proportional reduction.
- What property is covered at the job site, in transit, and at off-site storage, and what sublimits apply? Off-site materials can carry their own limits.
- Are flood, earthquake, windstorm, theft, vandalism, collapse, water damage, and equipment breakdown covered, excluded, or subject to their own deductibles? Major perils can be excluded or added only by endorsement.
- Does the policy cover the existing building, temporary structures, scaffolding, foundations, and excavation, or only new work? On a renovation, the existing building may be excluded unless an endorsement adds it, according to the ISO builders risk coverage form (opens in a new tab).
- Exactly when does coverage begin and end, and what happens if the project is delayed or partly occupied? A loss after the ending event may fall under a completed-property policy, or go uninsured if that changeover was not arranged.
Frequently asked questions
Three questions come up often when a project is being insured.
Who buys builders risk insurance?
The owner, developer, general contractor, or another party with an insurable interest in the project can buy it. The construction contract usually says who must buy it and which parties must be included, according to State Farm (opens in a new tab).
Does builders risk cover faulty workmanship?
A policy may exclude the cost of correcting defective work, design, planning, or materials while still covering resulting damage to other covered property, depending on its wording, according to The Hartford (opens in a new tab). Read the exclusion and the resulting-loss language together, and ask the insurer how they apply to your project.
Is builders risk required by law in Connecticut?
Connecticut has no general statewide requirement that every private project carry it. Contracts can require it, though: the Connecticut Department of Housing CDBG grants manual (opens in a new tab) requires builders risk on a completed-value basis for covered projects where the agency holds a collateral position. Your contract, loan documents, grant terms, and permit instructions set the requirement for your project.