What Does Builder's Insurance Cover?

When undertaking a construction project (whether it's a new home, commercial building, or renovation) there are numerous risks involved. Builder’s insurance, also known as Builder’s Risk Insurance, is designed to protect your investment during the course of construction. But what exactly does it cover?

In this article, we’ll break down what builder’s insurance typically includes, who needs it, and why it’s essential for any construction project.

What is Builder’s Insurance?

Builder’s insurance is a specialised type of property insurance that covers buildings under construction or renovation. It provides financial protection against loss or damage due to specific risks while the project is ongoing.

It is usually purchased by the property owner, general contractor, or developer, and coverage lasts for the duration of the project, until completion or handover.

What Does Builder’s Insurance Cover?

While coverage can vary depending on the policy, location, and insurer, most builder’s insurance policies cover the following:

1. Property Damage

This is the core of any builder’s insurance policy. It covers damage to the structure being built, as well as materials and supplies on-site.

Covered risks typically include:

• Fire
• Theft
• Vandalism
• Explosion
• Lightning
• Hail
• Windstorm
• Vehicle or aircraft impact

Example: If a fire breaks out and damages part of the newly framed structure, the policy would help cover the cost of repairs.

2. Materials and Equipment

Builder’s insurance can cover building materials, fixtures, and equipment used on-site - whether they are in transit, stored off-site, or installed.

Note: There are usually conditions on how materials must be stored to qualify for coverage.

3. Temporary Structures

This includes coverage for scaffolding, fencing, construction signs, and temporary buildings like site offices or storage units.

4. Soft Costs

Some policies offer optional coverage for "soft costs" which are expenses that are not directly related to construction but are incurred due to delays from a covered loss.

Examples include:

• Architect or engineering fees
• Legal or administrative costs
• Interest on construction loans
• Permit fees

5. Business Interruption or Delay in Completion

If a covered event (like a fire or storm) delays your construction project, this coverage can help compensate for lost income or additional expenses due to the delay.

What’s Not Covered?

While builder’s insurance is comprehensive, it does not cover everything. Common exclusions include:

• Workmanship defects or faulty design
• Employee injuries (covered under Workers’ Compensation)
• General liability for third-party bodily injury or property damage (usually requires a separate General Liability policy)
• Normal wear and tear
• Mechanical breakdown of construction equipment

Who Needs Builder’s Insurance?

Builder’s insurance is essential for a range of stakeholders in a construction project:

• Property owners
• Contractors and builders
• Developers
• Lenders or financial institutions (often require it before releasing funds)

How Much Does Builder’s Insurance Cost?

Costs depend on several factors, including:

• Value and size of the project
• Project duration
• Location
• Types of coverage and policy limits
• Claims history

On average, premiums can range from 1% to 4% of the total construction cost.

Final Thoughts

Builder’s insurance is a critical safety net for any construction project. It provides peace of mind by protecting your financial investment from unexpected setbacks like fire, theft, or storm damage.

Before beginning any construction work, it's important to consult with an insurance professional to tailor the right coverage for your project. A well-structured policy ensures that you’re protected from potential losses - and can complete your project with confidence.

Need Help Choosing the Right Policy?

Work with our licensed insurance brokers who understand construction risks and can compare policies to find the best fit for your specific needs.