How much does builder’s risk insurance cost?

There’s always some level of risk involved in construction, which is why it is important to invest in builder’s risk insurance. Often referred to as “course of construction” insurance, a builder’s risk policy protects against damage or loss incurred from construction or renovation projects.

If you’re planning to purchase a builder’s risk insurance policy, you may wonder: How much does it cost, and is it really necessary for your business? 

Builder’s risk insurance is an essential type of coverage for many businesses. In this article, we’ll break down the average cost of builder’s risk insurance premiums, dive into some factors that affect the costs, and even provide you with some tips for cutting down your premiums. 

How much does builder’s risk insurance cost?

Most insurance policies offer ongoing protection, so you’ll pay a monthly premium to retain coverage. Builder’s risk insurance works a bit differently. Since construction and renovation projects are temporary, you’ll generally pay a set amount for your coverage rather than an ongoing premium.

While the cost of builder’s risk insurance varies, most businesses pay between 1% and 5% of the total cost of the construction project. For example, if your budget for a renovation project is $100,000, a builder’s risk policy will typically set you back somewhere between $1,000 and $5,000.

How are builder’s risk insurance premiums calculated?

When calculating a premium for this policy, insurers will look at the following factors, among others:

• How much the project costs
• Where the project is located
• The experience level of the contractors and subcontractors involved in the project
• How long the project will take to complete
• The quality of your building materials
• The size of the construction site (square footage)

Factors that affect the cost of builder’s risk insurance

To get a good idea of what your builder’s risk insurance policy will cost, it’s important to understand the factors that insurers look at.

Most other business insurance policies, such as general liability and business interruption insurance, consider the size of your organization, how many employees you have, annual revenue, and more. As you might expect, underwriters look at different factors when determining the cost of builder’s risk insurance. Let’s take a closer look.

Cost of the project

As mentioned, the cost of builder’s risk insurance goes hand in hand with the cost of the construction or renovation project. Because a more expensive project poses a higher risk, businesses typically pay more for insurance.

For example, a highrise building could cost hundreds of millions of dollars to build, while smaller renovation projects may only cost $100,000. The builder’s risk insurance policy for the high-rise building construction will obviously cost significantly more.

Size of the project

Insurers also often look at the size (square footage) of the building. While the budget of a project is a solid starting point for estimating the overall value of the construction, the physical size of the project is another important consideration. The total square footage, number of floors, and the land area covered introduce specific risks that insurers account for when determining premiums.

Completion timeframe

The longer a project takes to complete, the more risk factors it will be exposed to. With each additional day a construction or renovation project remains unfinished comes more vulnerability. This is why a project with a one-month timeframe will have a lower builder’s risk insurance cost than a project with an 18-month timeframe. The 18-month timeline increases the chances of a natural disaster, accidents, vandalism, and theft. Additionally, during longer timeframes, the cost of materials can fluctuate, and regulations may change, which can throw a wrench into your risk management plan.

Coverage limits

Another thing to note about builder’s risk insurance is that there are many coverage limits that you can choose from when purchasing your policy. Your coverage limit is the maximum amount the insurer will cover for a claim. You’ll generally have control over your builder’s risk policy limit, and you don’t necessarily need to purchase a policy limit that covers the entire cost of your project. Choosing higher coverage limits provides more financial protection but also increases the cost of the policy.

Construction types

Insurers may also offer different coverage limits and coverage prices based on the classification of the materials used in the construction project.

This is very important information because rates can vary up to 50% depending on the type of construction project you are insuring.

When purchasing builder’s risk insurance, it’s very important to provide the correct information about your construction classification and materials, as incorrect information can lead to issues when claims arise. In some cases, an insurer might even deny the claim if the classification of the construction project on the policy is incorrect.

Some common construction types include:

• Frame: Buildings where the walls, floors, and roofs are made of wood or another combustible material.
• Joisted masonry: Buildings with roofs, floors, beams, and supporting joists made of combustible wood materials but exterior walls made of stone, brick, or concrete.
• All steel: Buildings with roofs and walls constructed of steel or aluminum sheet metal.
• Masonry noncombustible: Buildings with walls made of stone, brick, or concrete with floors and roofs made of some type of noncombustible materials.
• Fire resistive: Buildings that are specifically designed to withstand an interior fire for a period of several hours.

As you might expect, highly combustible and flammable properties will be more expensive to insure than noncombustible or fire-resistive materials. If you don’t know what type of materials your building is made of, your insurer will usually place the property in the most expensive “frame” classification code.

This protects the insurer in the case of an expensive fire-related claim that destroys the entire property.

Location

As with commercial property insurance, your location also affects the cost of your builder’s risk policy. Projects in regions that are prone to natural disasters, like Florida, Texas, and California, are particularly affected by increased premiums. If your construction project is located in a region with higher rates of crime and vandalism you’ll also likely see higher premiums for builder’s risk insurance.

Add-on coverage

The final factor that can raise the cost of your builder’s risk insurance is endorsements or additional elective coverage. For example, you can add an endorsement for “soft costs” to cover expenses like permits or interest on loans incurred due to delays caused by a covered loss.

You may also be able to add on specific natural disaster coverage, such as for floods or earthquakes, which are typically excluded from standard builder’s risk policies.

Who needs builder’s risk insurance?

Unsurprisingly, the types of businesses that are most likely to purchase builder’s risk insurance are those that own property. This insurance policy protects your business’s property from fires, wind, vandalism, storms, and theft that occur during a period of construction or renovation. 

Builder’s risk insurance is actually a specialized form of commercial property insurance. You can purchase the builder’s risk separately as a standalone policy or as an endorsement for an existing property or inland marine insurance policy. You can think of commercial property insurance as your protection for the finished product and builder’s risk coverage as protection during the actual construction process.

Anyone involved with the construction project can purchase the builder’s risk insurance policy. While some assume that it’s a policy that’s only for construction companies or contractors, in reality, anyone with a financial interest in the project and property can purchase the policy. 

Builder’s risk insurance can be purchased by construction companies, contractors, and subcontractors, as well as the building’s owners, engineers, and architects involved in the project.

In most cases, only one party will buy the actual policy. However, they will usually add the other relevant parties to the policy as named insureds using an additional insured endorsement.

It is worth noting that most local government agencies will typically ask for proof of insurance before they grant you a building permit for the project. The reason for this is to confirm that your project complies with local building codes.

What’s covered?

As we’ve already discussed, a builder’s risk insurance policy covers losses related to events that occur during the construction or renovation of a property. This may include:

• Vandalism
• Storm damage
• Fires
• Theft
• Heavy winds 

However, depending on the policy you purchase, your builder’s risk insurance may cover various types of contamination (such as mold) and even vehicle or aircraft collisions with the property.

Other areas of coverage 

Building materials and temporary structures

This policy usually covers not just the building itself but also other property related to the construction project, such as temporary structures, building materials, scaffolding, and even documents or data that are being housed at the project location (blueprints, contracts, project plans, etc.). That said, these things are not always covered, so it is definitely worth checking before purchasing a policy.

If these things are not covered by the policy, consider a business interruption insurance policy as well. This provides coverage in case your project is delayed because of damage incurred to building materials or temporary structures that need to be rebuilt before the project can move ahead.

Soft costs

The policy can also cover what construction companies often refer to as “soft costs.” Soft costs can be things such as additional real estate taxes, permits, and any possible penalties or interest owed to local governmental agencies.

Debris removal

Some builder’s risk policies will also cover costs such as debris removal in the event of property damage to structures and building materials that will need to be removed from the property before the project can restart.

Replacement value or actual cost?

Just like with commercial property insurance policies, the policyholder can choose between purchasing a replacement value or an actual cost policy. A “replacement cost” policy costs more as it will cover the cost of new materials, while an “actual cost value” policy covers the depreciated value of the damaged property.

Common exclusions

Just like any other insurance policy, there are certain types of coverage that are not included in a builder’s risk policy. In most cases, builder’s risk insurance exclusions are typically covered by other insurance policies. 

The policy language on exclusions can vary from one insurer to another, which is why it’s incredibly important to work with a dedicated and experienced insurance broker or agent when putting together your builder’s risk policy. Let’s take a look at some of the areas of coverage that are not covered by the policy.

Employee theft

If your business experiences loss due to an employee stealing building materials, equipment, or other property from the project site, your builder’s risk policy will not cover these damages. This is because employee theft losses are typically covered by a commercial crime policy.

Damage to work vehicles

While the physical property itself, as well as the equipment used for the project, are included in a builder’s insurance policy, vehicles are not. Damages to your work vehicles won’t be covered under the policy as these claims are typically covered by a commercial auto insurance policy.

Earthquakes and floods

Builder’s risk insurance covers some natural disasters such as large storms or wind, but earthquake and flooding damages are almost always excluded by both builder’s risk and commercial property insurance.

That said, if you live in a region that is especially prone to these types of natural disasters, you can purchase specialized policies to protect your project.

Professional errors

A builder’s risk policy won’t cover flaws in design, workmanship, or manufacturing defects. These types of damages are typically covered by professional liability coverage. This is an important policy for contractors, subcontractors, architects, and engineers to purchase as a guarantee for the quality of their professional services.

Tips for reducing the cost of builder’s risk insurance

Looking for ways to reduce the cost of builder’s risk insurance? A construction project can be a major financial burden on its own, and stacking on hefty insurance fees can make matters worse. Here are some things you can do to cut costs.

Bundle with other policies

As mentioned, builder’s risk insurance is generally purchased as an add-on for commercial property insurance. You’ll almost always get a better price when you purchase multiple insurance plans at the same time under a bundle. If you are looking to insure a new project, chances are you’ll need commercial property, commercial auto, and even general liability insurance (if you don’t have it already). Consider buying these policies together to get the best price.

Get help from an insurance broker

While it is certainly possible to purchase builder’s risk insurance on your own, enlisting the help of an insurance broker can save you time and money. There are countless different providers and policy nuances out there, which can make it nearly impossible for anyone who isn’t an insurance expert to navigate and choose the right provider.

An insurance broker will help you choose the right coverage, policy limits, and endorsements for your project, which may help you cut costs in the long run.

Opt for a higher deductible

When looking to cut costs on your insurance premium, your best bet is to choose a higher deductible. Your deductible is the amount of money your company will pay for claims before the policy kicks in. The higher you set your deductible, the more you’ll pay for claims. While this is a surefire way to lower premiums, make sure you choose a deductible that you are actually comfortable paying. The last thing you want is to be stuck with debts you are not prepared to pay.

Ensure all information about the project is accurate

We can’t overstate how crucial it is to provide accurate information about the construction or renovation project when purchasing a builder’s risk policy. Underwriters determine your costs based on the size and cost of the project, as well as the building materials, location, and timeframe. If you mistakenly provide incorrect information you’ll risk paying higher premiums — and having your claims denied.

Manage risks effectively

The fewer claims you have in your past and the better your company manages risks, the lower your builder’s risk insurance costs will be. Establish a strong safety program, conduct regular site inspections, and ensure the project complies with local regulations to minimize the likelihood of costly accidents or damage. You should also communicate your risk management strategies to your insurer, as this may result in lower premiums.

Protect your projects with builder’s risk coverage

Builder’s risk insurance is an essential policy for any business that owns property or is involved in a construction or renovation project. It is important to understand the coverage that builder’s risk insurance offers as well as what to expect in terms of cost. 

If you’d like to learn more about builder’s risk insurance, you can check out our builders risk insurance blog or sign up for an Embroker account and get a free quote in just a few minutes.