Builder's Risk Insurance for Contractors
Builder's risk insurance covers the structure you are building (the materials, the framing, the mechanicals, the finishes) against physical damage while it is under construction. General liability covers damage you cause to other people's property. Builder's risk covers damage to the project itself. For contractors and builders who are responsible for a structure during construction, understanding what this coverage does and does not include is essential before the first nail goes in.
What Builder's Risk Insurance Actually Covers
Builder's risk is a property insurance policy written specifically for structures under construction. As IRMI defines it, a builder's risk policy covers property in the course of construction and is usually written on an all-risks basis, applying not only to property at the construction site but also to property at off-site storage locations and in transit. That last point matters more than most contractors realize. Materials stored at a supplier's yard, lumber staged in a parking lot, or fixtures in transit to the site are all potentially covered under a properly structured builder's risk policy.
The coverage applies to the structure itself: framing, foundation, roofing, mechanical systems, finishes, as well as materials and supplies that will become a permanent part of the building. Temporary structures like scaffolding and construction forms are typically included, usually subject to sublimits. The covered perils on an all-risk policy include fire, wind, hail, lightning, theft, vandalism, and in most cases explosion. Flood and earthquake are standard exclusions that can often be added by endorsement.
What builder's risk does not cover is equally important. It does not cover your tools and equipment. It does not cover third-party bodily injury or property damage, that is general liability's job. It does not cover the cost of correcting faulty workmanship. And it does not cover liability arising from completed operations after the project is handed over.
Who Buys Builder's Risk and Who Is Covered
This is one of the more confusing aspects of builder's risk for contractors. Whether the owner, the GC, or the contractor is the one responsible for purchasing the policy depends on the contract.
On most commercial projects, the project owner purchases the builder's risk policy and names the GC and subcontractors as additional insureds. The AIA standard contract documents, which are used as the template for a large portion of commercial construction contracts in the United States, require the owner to purchase builder's risk insurance covering the interests of the owner, contractor, and subcontractors. On design-build projects and some residential projects, the GC or builder purchases the policy.
As IRMI's analysis of builder's risk naming conventions explains, four different standardized construction contracts (AIA, EJCDC, ConsensusDocs, and DBIA) take four different approaches to how parties are protected under the policy, ranging from named insured status to additional insured to loss payee. The general consensus of the construction insurance industry is to protect designated parties by naming them as insureds or additional named insureds, both to afford direct coverage and to avoid subrogation actions following a loss.
The practical takeaway for contractors is this: before you start work on any project, confirm who is purchasing the builder's risk policy, that you are named as an insured or additional insured on it, and that the policy limits are adequate for the full completed value of the project.
When Lenders Require Builder's Risk
Construction lenders almost universally require builder's risk insurance as a condition of funding. USDA Rural Development's construction lending guidelines specify that builder's risk insurance is required during all periods of construction, reconstruction, and rehabilitation to protect the property against loss or damage. The lender needs to be named as a loss payee on the policy so that insurance proceeds are applied to reconstruction rather than diverted elsewhere.
For spec builders and custom home builders who use construction loans, this means builder's risk is not optional, it is a loan condition that must be satisfied before draws are funded. The policy must remain active for the entire construction period and through project closeout. A lapse in coverage during construction can trigger a draw hold or a loan default, neither of which is a situation you want to discover mid-project.
Coverage Structure: What to Look For in a Builder's Risk Policy
Not all builder's risk policies are written the same way and the differences matter significantly when a claim occurs.
Coverage basis should be all-risk rather than specified perils. All-risk covers everything except what is specifically excluded. Specified perils only covers the named events. All-risk is the stronger coverage form and the one most commercial contracts require.
Completed value vs. reporting form affects how the policy limit is set. A completed value policy is written for the projected completed value of the project at inception. A reporting form policy requires periodic reporting of work completed and in-place values. For most residential and smaller commercial projects, a completed value form is simpler and more appropriate.
Soft costs coverage covers the additional expenses that result from a covered loss: architect fees for redesign, additional permit fees, loan extension costs, and project management overhead required to rebuild. As Oregon's Department of Administrative Services insurance guidance explains, coverage should be endorsed to include soft costs because these expenses can be substantial and are not covered under the base policy without the endorsement. For larger projects, soft costs can easily run into hundreds of thousands of dollars on top of the direct physical damage costs.
Off-site materials coverage applies to materials and equipment purchased for the project but not yet delivered to the site. Confirm the policy covers materials at the supplier's yard, in transit, and in temporary storage, not just materials already installed or staged on the active job site.
Flood and earthquake exclusions are standard but can often be endorsed. If the project is in a flood zone or seismically active area, adding these coverages is worth the additional premium. A covered loss that triggers a flood or earthquake sublimit instead of full coverage can leave a significant gap between what the policy pays and what reconstruction actually costs.
Where to Get Builder's Risk Insurance
NEXT Insurance offers builder's risk coverage for contractors and builders with online quotes and same-day certificates of insurance. Their platform covers residential and light commercial construction projects and allows builders to add coverage for specific projects as needed.
Liberty Mutual offers builder's risk programs for a range of project types and values. Their commercial construction division covers larger residential and commercial projects that require higher coverage limits and more complex policy structures.
Thimble offers project-based builder's risk coverage for contractors who need to insure specific projects rather than carrying a master builder's risk policy. For contractors who build intermittently or need coverage for a single project, Thimble's short-term structure is a practical option.
State Farm offers builder's risk coverage through their small business insurance program and is a recognized carrier name for residential builders working with buyers and lenders who want coverage from an established carrier.
PRO-TIP: If you are a subcontractor who assumes the GC's builder's risk policy covers your work and materials on the job site, read the policy before you rely on that assumption. Some builder's risk policies name only the owner and GC as insureds and do not extend coverage to subcontractors by default. Confirm your status as an insured or additional insured on every project before you assume you are covered.
The Relationship Between Builder's Risk and Other Construction Coverages
Builder's risk does not operate in isolation. It is one piece of a construction insurance program that includes general liability, workers' comp, commercial auto, and contractor equipment coverage. Understanding how these coverages interact prevents both gaps and overlaps.
General liability and builder's risk address different risks. If your crew accidentally damages an adjacent structure during construction, GL responds. If the project itself is damaged by a covered peril, builder's risk responds. If a worker is injured on the job site, workers' comp responds. None of these coverages overlap in meaningful ways and each fills a gap the others leave open.
Builder's risk and contractor equipment coverage also work together without overlapping. Builder's risk covers the structure and materials that will become part of the building. Contractor equipment coverage covers the tools, machines, and equipment your crew uses to build it. The excavator that digs the foundation is covered under equipment coverage. The foundation itself is covered under builder's risk.
Watch Out: Builder's Risk Policies Expire and Do Not Auto-Renew
Here is something that creates real problems on projects that run long. Builder's risk policies are written for a specific project term, typically six to twelve months. Unlike most business insurance policies, builder's risk does not automatically renew. When the term expires, coverage ends. If the project is not complete, there is a gap.
Construction projects run over schedule constantly. Weather delays, permit issues, material lead times, subcontractor problems. Any of these can push a project past the original completion date. If your builder's risk policy expires before the project is substantially complete, you need to extend it. Most carriers will extend the term by endorsement, but you need to request the extension before the policy expires, not after. A project that loses builder's risk coverage mid-construction because the policy term expired is fully exposed to loss from that point until coverage is reinstated, which is not always immediate.
Track your builder's risk expiration dates on every active project. Build a 30-day advance notification into your project management process so you are never caught discovering an expired policy after the fact.
Bottom Line
Builder's risk insurance covers the asset that every other policy on a construction project leaves exposed: the structure itself while it is being built. Understand who is responsible for purchasing it on each project, confirm you are named as an insured, verify the policy covers off-site materials and soft costs, and track expiration dates proactively on every active job. NEXT Insurance, Liberty Mutual, Thimble, and State Farm all offer builder's risk coverage for residential and commercial construction projects. The project that burns down, floods, or gets hit by a tornado without builder's risk in place is not just a tragedy, it is a financial event that most contractors do not survive.
Related Contractor Insurance Resources
Main Resource: Contractor Insurance Guide — Your complete guide to insurance coverage, requirements, and strategies built specifically for contractors.
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General Liability Insurance for Contractors — Covers the liability side of builder insurance, the coverage that works alongside builder's risk to protect both the project and the builder's financial exposure.
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Heavy Equipment Insurance — Covers the equipment and tools your crews use to build with, the coverage that works alongside builder's risk on active construction sites.
Insurance requirements and market premiums are subject to change alongside state legislation and carrier appetite. While we audit and update this data annually to ensure reliability (Last Updated: May 2026), these figures are for research and planning purposes only. Always verify specific coverage mandates with your local licensing board or a licensed broker.
FAQ: Builder's Risk Insurance
What happens if the project is damaged before builder's risk is in place?
You are fully exposed, and the loss comes out of your pocket or the owner's pocket depending on what the contract says. Builder's risk coverage needs to be bound before construction begins, not after the first wall goes up. The most common version of this problem is a contractor who assumes the owner is handling builder's risk, the owner assumes the contractor is handling it, and neither confirms it before work starts. A fire, a storm, or a theft during that window leaves everyone pointing at each other with no policy to respond. The second version is a contractor who purchases coverage but delays binding it by a few days to save a small amount of premium. Those few days are when something happens. Confirm who is purchasing the policy, confirm it is bound before mobilization, and get the certificate in hand before any materials are delivered to the site.
Does builder's risk cover theft of materials from the job site?
Yes, theft is a standard covered peril under most all-risk builder's risk policies, but the details matter. Coverage typically applies to materials that will become a permanent part of the structure: framing lumber, roofing materials, mechanicals, fixtures. What it does not cover is your tools and equipment, which require a separate contractor equipment policy. The theft exposure that catches builders off guard is materials staged on an unsecured site overnight or over a weekend, particularly in high-theft markets where copper, lumber, and HVAC equipment are targeted regularly. Some policies impose sublimits on theft or require certain security conditions to be met, such as fencing, lighting, or locked storage, for theft coverage to apply fully. Read your policy's theft provisions specifically and confirm there are no security conditions that could compromise a claim before you leave a site unsecured overnight.
If a subcontractor damages part of the structure during construction, does builder's risk cover it?
It depends on how the damage occurred and what your policy says about the faulty workmanship exclusion. Builder's risk covers sudden, accidental physical damage from covered perils. If a subcontractor accidentally starts a fire that damages framing, builder's risk responds. If a subcontractor installs something incorrectly and the work needs to be torn out and redone, that is faulty workmanship, which is a standard exclusion in virtually every builder's risk policy. The policy does not pay to fix bad work. What it may cover is damage the faulty workmanship causes to other parts of the structure - the resulting damage, not the defective work itself. This distinction is important on larger projects where one trade's error can cause cascading damage to finished work in adjacent areas. Confirm with your agent exactly how your policy handles faulty workmanship and resulting damage before you have a subcontractor dispute mid-project and are trying to sort out coverage under pressure.