Builders Risk Insurance for Real Estate Investors
Comprehensive protection for construction projects, fix-and-flips, and major renovations. Understand coverage types, costs, and how to file claims.
Market Value
$5.36B
Typical Cost
1-5%
Annual Premium
$1,000-$5,000
What is Builders Risk Insurance?
Builders risk insurance is specialized commercial property insurance that protects the structure and materials during construction, renovation, or substantial rehabilitation work. Unlike standard property insurance, builders risk covers only the period during active construction and typically expires when the project is completed or when you move in.
For real estate investors, this coverage is essential for protecting your investment during the vulnerable construction phase. A single incident—fire, theft, storms, or vandalism—can cost tens of thousands of dollars and derail your project timeline.
Builders risk is a short-term policy with flexible coverage that can be customized for your specific project needs, materials, and timeline.
Who Needs Builders Risk Insurance?
✓ Must Have Coverage
- • Fix-and-flip investors (renovating properties for resale)
- • Contractors building homes or commercial structures
- • Property developers
- • Landlords doing major renovations (typically 25%+ of value)
- • Anyone with a construction loan
✓ Highly Recommended
- • Any new construction project
- • Substantial additions to existing structures
- • Property renovations in high-risk areas
- • Projects using valuable materials or specialized labor
- • Out-of-state investment properties
Coverage Overview
What's Covered
- ✓Building structure - The frame, walls, roof, and permanent fixtures under construction
- ✓Materials and supplies - Lumber, drywall, electrical materials, plumbing supplies, and other building materials
- ✓Equipment and tools - Scaffolding, temporary structures, and contractor equipment
- ✓Labor costs - Incorporated into the project's insurable value
- ✓Named perils - Fire, lightning, windstorm, hail, explosion, riots, and vandalism (depending on policy)
- ✓Soft costs - Optional: permits, design fees, financing costs, and other project expenses (additional premium)
What's NOT Covered
- ✗Theft by employees - Inside theft coverage requires optional endorsement
- ✗Poor workmanship - Defects due to faulty installation or inferior materials
- ✗Existing damage - Deterioration that existed before construction start date
- ✗Design defects - Structural problems inherent in the design
- ✗Delays and soft costs - Unless specifically endorsed (requires additional premium)
- ✗Cost increases - Labor inflation or material price changes
Builders Risk Insurance Cost Breakdown
Builders risk is typically priced as a percentage of the total construction cost (hard costs) for the coverage period. Premium calculations vary by insurer, but typically follow these patterns:
| Project Size | Percentage | Annual Premium | Coverage Period |
|---|---|---|---|
| Under $100,000 | 2-5% | $500-$2,500 | 6-12 months |
| $100K-$500K | 1.5-3% | $1,500-$5,000 | 6-18 months |
| $500K-$1M | 1-2% | $5,000-$10,000 | 12-24 months |
| Over $1M | 0.5-1.5% | $5,000-$15,000+ | 12-36 months |
Factors Affecting Your Premium
- • Project location - Disaster-prone areas cost more
- • Construction timeline - Longer projects may have different rates
- • Construction type - Wood frame vs. concrete vs. steel
- • Occupancy type - Residential vs. commercial rates differ
- • Deductible amount - Higher deductibles = lower premiums
- • Coverage type - Named perils vs. open perils vs. special form
- • Your claims history - Previous claims increase premiums
- • Insurer appetite - Some insurers are more competitive for specific project types
Filing a Builders Risk Claim
The claims process for builders risk is typically faster than standard property claims because the values are pre-determined and coverage is straightforward. Here's what to expect:
Report the Loss Immediately
Contact your insurance agent or insurer as soon as damage occurs. Provide your policy number, date and time of loss, location, and description of what happened.
Document Everything
Take photos and videos of all damage from multiple angles. Keep receipts for materials and supplies. Document work stoppages and delays. Create detailed written descriptions.
Prevent Further Damage
Take reasonable steps to prevent additional losses. Board up damaged areas, cover exposed materials, and maintain site security. These costs are typically covered by insurance.
Meet with the Adjuster
The insurer will assign an adjuster who will inspect the damage, review your documentation, and estimate repair costs. You can provide your own contractor estimate if you wish.
Receive Settlement
Once approved, the insurer will issue payment. Builders risk policies typically pay on an actual cash value basis, meaning depreciation may apply depending on your coverage form.