PROTECTING THE POSSIBLE
Builder’s Risk Insurance
Builder’s risk insurance offers specialized protection for projects while they are under construction, filling a critical gap in coverage not typically available from liability or commercial property policies. This type of insurance provides developers and contractors an important risk management tool that can help keep projects on budget and on schedule.
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COVERAGE SNAPSHOT
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Builder’s risk insurance protects construction projects from unexpected events, typically covering damage to the structure, as well as materials, equipment, and other project assets on-site — such as blueprints, scaffolding, fencing, and signage. Coverage typically begins when construction starts and lasts until the project is completed or ready for occupancy
What is typically covered?
Builder’s risk insurance can vary depending on the policy and project needs, but it generally covers a wide range of risks, including:
- Weather-related damage: Natural disasters, such as windstorms, hurricanes, tornadoes, earthquakes, and floods can disrupt projects and result in costly damages. With extreme weather events becoming more frequent, this protection is especially crucial.
- Fire: Fires on a construction site can lead to extensive damage, often requiring major repairs or even a complete rebuild.
- Theft and vandalism: Construction materials and equipment are valuable assets, making job sites targets for theft and vandalism. A builder’s risk policy helps cover these losses.
- Water Damage: Interior water damage caused by faulty plumbing installation or equipment is amongst the leading causes of loss covered by builder’s risk insurance.
- Some policies also cover additional costs from construction delays, like interest on loans, lost sales or rental income, and real estate taxes.
What is typically not covered?
Builder’s risk insurance typically does not cover liabilities, such as employee injuries, professional mistakes, or defective materials. You may need additional policies, like general liability or professional liability insurance, for these types of risks.
It also excludes certain events and types of damage, including:
- Faulty design or workmanship: Unless specifically endorsed, direct damage caused by errors in design or substandard work aren’t covered. Any damage from these scenarios needs separate protection. This highlights the importance of careful planning and quality control throughout the project.
- Wear and tear: Normal wear and tear, including gradual deterioration or maintenance issues, isn’t covered. Builder’s risk insurance is designed for unexpected, accidental losses, not routine maintenance.
- War and government action: Damage from acts of war or government actions, such as property confiscation, is typically excluded. While rare, these exclusions are common across most types of property insurance, including builder’s risk.
- Contractor equipment: The builder’s risk policy is intended to cover materials and equipment that are to be permanently installed in the building or structure. Heavy equipment used to support the construction, such as cranes, scissor lifts, and excavators, are more properly insured under the contractor’s own insurance.
WHO NEEDS COVERAGE
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Builder’s risk insurance is highly recommended for any party with a vested interest in a construction project who could face financial loss from project delays or damage. In many cases, lenders and project owners require it as part of their risk management plan.
Consider this insurance if you are a:
- Developer: Developers of large-scale projects often purchase insurance policies to protect both the entire structure and their financial investment.
- Contractor or subcontractor: Contractors involved in the construction typically include builder’s risk policies — especially if they’ve invested in materials and labor for the project. Even if a developer has coverage, contractors should double check that their interests are also protected.
- Property owner: For renovations and remodels, property owners may choose to add builder’s risk insurance to protect against losses during construction.
Lenders often take a hands-on approach to ensure that their investments are properly protected from the risk of physical loss. It is standard for lenders to be included on builder’s risk policies as additional insureds and loss payees.
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