No federal or state law broadly forces builders risk insurance, but nearly every construction loan and many standard construction contracts require it. If you are financing new construction or a major renovation, this expectation and not a statute is what will shape your coverage decisions.
- Builders risk insurance typically costs between 1% and 5% of the total construction value, with the premium influenced by project location, size, duration, and risk exposures.
- Coverage start dates vary by policy and can trigger on the effective date, material delivery, or contract signing, making policy language clarification essential.
- Many standard policies exclude earthquake, flood, windstorm, faulty workmanship, and theft, requiring separate endorsements or stand-alone policies for these perils.
- Proper documentation, including certificates of insurance and a full policy copy, must be obtained before mobilization to ensure loan compliance and avoid higher force-placed premium costs.
- Confirming that all policy requirements align with loan covenants, including limits, named insureds, and endorsements, prevents costly delays and claim disputes during project execution.
Builders risk insurance, also called course of construction coverage, protects a structure while it is being built or renovated. It typically covers the building itself, materials and supplies on-site, and often temporary structures like scaffolding or site offices, against perils such as fire, theft, vandalism, wind, and hail. Most carriers write these policies on the ISO Builders Risk Coverage Form CP 00 20, though some insurers place the coverage under inland marine forms instead, which changes how certain property in transit or storage gets treated.
A standard policy rarely covers everything a project needs out of the box:
Because policy language varies by carrier, the specific form and endorsement package matter more than the generic label “builders risk.”
The AIA default contract structure often places builders risk responsibility on the owner, though many projects negotiate that duty to the contractor instead. Who buys the policy changes who counts as a named insured, how waivers of subrogation are structured, and who absorbs the deductible when a claim happens.
Skipping this step rarely goes unnoticed. Lenders that discover a gap in coverage will often force-place a policy at a higher premium than the borrower could have secured directly, and that cost lands on the draw schedule.
Builders risk policies do not all trigger the same way. Some carriers set the effective date as the binding date, others tie it to when materials first arrive on-site, and some use the contract signing date. Confirming this detail in the policy language matters more than assuming a default.
Early occupancy is one of the most common and avoidable causes of denied claims on active job sites.
Standard builders risk forms exclude several perils that owners assume are covered. Earthquake, flood, and named windstorm damage typically require separate endorsements or standalone policies, and faulty workmanship, employee theft, and losses tied to government action are also commonly excluded outright.
Percentage-based catastrophe deductibles can materially change out-of-pocket exposure in a loss. A named windstorm deductible calculated as a percentage of the insured value, rather than a flat figure, can turn a modest claim into a significant self-funded repair.
Builders risk premiums generally run between 1% and 5% of total construction value, according to industry cost estimates. Where a specific project lands in that range depends on several variables working together rather than any single factor.
Project value and type set the baseline, but location and peril exposure move the number significantly: a coastal project facing named windstorm risk will price higher than an inland build of similar size. Duration matters too, since a longer build extends the exposure window. Deductible choice, safeguard endorsements like fencing and alarm systems, and the contractor’s claims history all factor into underwriting. Lender-required endorsements, such as soft costs coverage or higher completed-value limits, tend to push the premium upward as well, since they add real exposure the carrier has to price.
A non-reporting policy locks in the final anticipated value up front rather than adjusting monthly, which simplifies compliance but means the limit needs to be right from the start.
Our construction loan requirements guide walks through how these insurance conditions interact with underwriting standards like credit score and down payment thresholds.
Before mobilization or the first draw request, confirm each of these items directly against the policy and loan documents rather than relying on a broker’s summary.
Pro Tip: Request the full policy wording, not just a certificate summary, before mobilization: certificates often omit sublimits and conditions that later determine whether a claim gets paid.
A few precise questions can surface gaps before they become claims disputes. Ask your broker directly rather than assuming standard language covers your project.
Pro Tip: Keep your financing and insurance timelines synchronized. Faster construction financing, such as Capital Funding’s Ground Up Construction Program, can shorten the gap between loan closing and mobilization, giving your broker more runway to bind coverage before the first draw is due.
No broad federal or state statute mandates builders risk insurance for private construction, and this holds true across nearly every U.S. jurisdiction. The requirement exists almost entirely through loan covenants and standard construction contracts rather than through building codes or insurance regulations.
Federal loan programs are the exception. FHA 203(k) loans and construction-to-permanent loan programs require active builders risk coverage during construction under HUD guidelines, which means the requirement is program-specific rather than a general federal rule. Fannie Mae’s own guidance for multifamily construction lending similarly requires coverage equal to at least 100% of completed value on a non-reporting basis whenever property insurance is excluded during the construction period, a standard many private construction lenders mirror even when they are not bound by Fannie Mae’s rules directly.
State insurance departments regulate how builders risk policies are written and priced, including licensing for carriers and agents, but they generally do not mandate that a project carry the coverage. Local building departments may reference insurance in permit conditions on certain project types, though this varies by municipality and is far less consistent than the lender-driven requirement. For most readers, the practical rule is simple: check your loan documents and construction contract first, since those, not state law, will dictate whether coverage is mandatory and at what limit.
Filing a builders risk claim starts with immediate notice to the carrier, ideally within the timeframe specified in the policy, which is often a matter of days after discovering the loss. Delayed reporting is one of the more common reasons insurers push back on claims, so notifying the broker or carrier the same day damage is discovered protects the claim’s standing.
Documentation matters as much as the notice itself. Photograph and video the damage before any cleanup begins, and preserve damaged materials where safety allows, since adjusters rely on physical evidence to establish the cause and extent of loss. Gather the project’s builders risk policy, the general contractor’s certificate of insurance, subcontractor agreements, and any change orders that affected the scope of work at the time of loss. A detailed cost estimate for repairs, ideally from the contractor already on the project, speeds up the adjuster’s evaluation.
Expect the insurer to assign an adjuster who will inspect the site, review the documentation, and compare the claimed amount against the policy’s valuation method, replacement cost or actual cash value. Projects insured on a non-reporting, completed-value basis generally see fewer disputes over whether the limit was adequate, since the full anticipated value was already locked in at binding. Keep a written log of every communication with the adjuster and carrier, including dates and names, since claims involving multiple named insureds, owner, contractor, and lender, can get complicated when parties disagree about repair scope or timeline. If the claim involves a lender-required policy, notify the lender promptly as well, since many loan covenants require borrower notice of any claim above a set threshold.
Builders risk insurance is easy to confuse with other policies contractors and owners carry, but each serves a distinct purpose. Builders risk protects the physical structure and materials during construction against direct physical loss, while general liability insurance protects against third-party bodily injury or property damage claims arising from the contractor’s operations, an entirely different risk category.
Contractor’s equipment coverage, sometimes called inland marine equipment coverage, protects tools, machinery, and equipment owned or rented by the contractor, separate from the structure itself. A crane or generator damaged on-site falls under equipment coverage, not builders risk, even though both policies might apply to the same job site on the same day.
Workers’ compensation insurance, required in nearly every state for employers, covers injuries to the contractor’s own employees and operates independently of both builders risk and general liability. None of these policies substitute for another: a project can carry comprehensive general liability and still face a total loss if the structure itself is not separately insured under a builders risk policy. Lenders typically require evidence of all of these coverages before closing, precisely because each addresses a different exposure. Reviewing certificates side by side, rather than assuming one policy covers everything, is the surest way to catch a gap before it becomes a claim dispute.
Project teams that line up insurance, contract terms, and financing before ground breaks avoid the costliest surprises. Align the policy’s effective date with your mobilization and draw schedule, never assume a contractor’s policy protects the owner or lender by default, and run the compliance checklist during procurement rather than after the loan closes.
— Daly Kay DiNatale
Insurance deadlines and financing timelines need to move together, and slow closings are one of the more common reasons projects scramble to bind coverage at the last minute. Some private lenders close hard money and construction loans in days rather than weeks, which gives your team a more predictable window to secure builders risk coverage before mobilization instead of racing the clock.
Capital Funding finances the project, it does not provide insurance, but a faster close means one less variable competing against your certificate deadline. Start a loan application to see how quickly your project could move.
For readers who want to confirm these standards directly, the AGC owner-placed builders risk checklist and the Fannie Mae Multifamily Guide are the primary sources cited throughout this article.
No broad federal or state law makes builders risk insurance mandatory, but most construction loans and many construction contracts require it as a condition of funding. Specific federal programs, including FHA 203(k) loans, do require active coverage during construction under HUD guidelines.
Lenders typically require limits equal to 100% of the completed value of the project on a non-reporting basis, a standard the Fannie Mae Multifamily Guide sets for construction lending. Premiums for that coverage generally run between 1% and 5% of total construction value, according to industry cost data.
Either the owner or the general contractor typically purchases the policy, depending on how the construction contract allocates responsibility, with the AIA default often placing it on the owner unless negotiated otherwise. Whoever buys the policy usually passes the cost through the project budget, and the lender still requires proof of coverage regardless of who pays.
A builder’s risk insurance policy, also called course of construction coverage, protects a structure, on-site materials, and often temporary structures against perils like fire, theft, and wind while a project is under construction. Most carriers write it on the ISO CP 00 20 form, with endorsements added for exposures like flood, earthquake, or materials in transit.
