Purchasing Builder’s Risk Insurance

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Man builder down at construction site.


Wikipedia defines builder’s risk insurance in the following way:

“Builder’s risk insurance is, “a special type of property insurance which indemnifies against damage to buildings while they are under construction. Builder’s risk insurance is coverage that protects a person’s or organization’s insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.”


The cost of builder’s risk insurance is computed as 1% to 5% of the total cost of the construction project. That’s a sizable sum of money.The larger the project the higher the premium for this type of insurance will be. For that money, you will want a policy that covers the contingencies involved in a build or renovation. One way to help ensure that you have the right coverage is by finding a knowledgeable agent.


An agent that’s selling you builder’s risk insurance must have special qualifications:

  • The agent must have an in-depth knowledge of the construction industry, specifically what coverage is required in a new build, renovation or repair.
  • The agent must work for several insurance companies, so he can choose a company that specializes in the construction industry.
  • The agent must know that a builder’s risk can be bought by the construction manager or the owner. If the owner is the client, the agent must design an insurance policy that offers the protections an owner wants and the coverage a construction manager needs to have a successful outcome.

Construction Documents

Construction documents outline in great detail what the construction manager, employees, and sub-contractors must do to meet the requirements of the contractual agreements. Construction documents come into play in builder’s risk insurance because the owner or construction manager must compare the construction documents with the policy. If there is a discrepancy between the construction documents and the policy, then the construction documents or policy must be modified.

Soft Costs

Soft costs refer to the costs that you might have to include certain items in your policy. Soft costs are sometimes included in more expensive policies. However in most policies these items are excluded. Soft costs can include the following:


Builder’s risk insurance is essential. Sometimes, having this type of insurance is mandated by the owner. One thing you should do before committing to soft costs is compare this policy coverage to your commercial general liability and workers comp policies, both of which are required by a number of states.

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