In Plain English
Quick Answer
Insurance that protects a building while it's being built.
Definition
Definition
Builder's risk insurance is a specialized form of property insurance that covers a building under construction against damage from events such as fire, wind, vandalism, and theft. The policy typically covers the structure, materials on-site, and materials in transit. Coverage begins at the start of construction and ends when the project is substantially complete and occupied.
Context
Why It Matters in Bidding
Builder's risk insurance is frequently a bid requirement, and who carries it (owner or contractor) is spelled out in the contract, so estimators must price the premium into general conditions when responsibility falls on the GC. A coverage gap exposes the contractor to catastrophic loss of work-in-place that no payment application can recover, making it central to risk allocation during procurement.
Example
Example
A developer purchases a builder's risk policy before breaking ground on a $10 million office building to protect against fire or storm damage during the 18-month construction period.
See Also
Related Terms
FAQ
Questions Contractors Ask
Who is responsible for buying builder's risk insurance?
It depends on the contract. On many owner-controlled projects the owner procures the policy and names contractors as additional insureds; on others the general contractor carries it and bills the premium through general conditions. The bidding documents should state who provides coverage so estimators can include or exclude the cost accurately.
What does builder's risk insurance typically exclude?
Standard policies usually exclude faulty workmanship, design errors, normal wear, mechanical breakdown, and employee theft, and often exclude flood and earthquake unless added by endorsement. Existing structures in a renovation may also be excluded, which is why teams confirm coverage limits and endorsements before relying on the policy for risk transfer.
When does builder's risk coverage end?
Coverage generally terminates at the earliest of substantial completion, owner occupancy, or the policy expiration date. Because that transition leaves a window before permanent property insurance starts, contractors and owners coordinate the handoff carefully so completed work is never temporarily uninsured during turnover.
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