Builders Risk Insurance
Also known as: Course of Construction, COC Insurance
Required by most lenders for construction projects. Covers fire, theft, vandalism, weather, collapse during construction. Standalone policy or endorsement on a Commercial Package. Lapses when the building is occupied or accepted.
Real-world scenario
Summit Ridge Builders, a general contractor in Boise, Idaho, breaks ground on a 24-unit wood-frame apartment building with a total completed value of $6,200,000. Their lender requires a course-of-construction policy before releasing the first draw, so Summit Ridge buys a Builders Risk Insurance policy with a $6,200,000 limit written on a completed-value form. The 12-month premium comes to $31,000 (a rate of roughly $0.50 per $100 of value), with a $10,000 per-occurrence deductible and a separate $50,000 deductible for water damage. They add a soft costs endorsement with a $400,000 sublimit to protect loan interest and lost rent if a covered loss delays the schedule.
Eight months in, a subcontractor's torch ignites exposed framing and a fire destroys three of the completed units. The direct property damage to installed materials and labor totals $1,850,000. Debris removal adds $95,000, and a code upgrade to sprinkler the rebuilt units — triggered by the local ordinance or law — adds another $120,000. The four-month delay drives $180,000 of extra loan interest and re-permitting costs, paid under the soft-costs sublimit.
The carrier applies the $10,000 deductible and pays a net direct-damage claim of $1,840,000, plus the $95,000 debris and $120,000 ordinance amounts, for a total building payout of $2,055,000. Because Summit Ridge's $31,000 premium protected a loss that would have bankrupted the project, the lender's insistence on the coverage proved decisive — and the carrier later pursued the subcontractor's general liability insurer through subrogation.
How it affects your premium
Builders Risk premiums are usually quoted as a rate per $100 of the total completed value, then adjusted up or down by the risk characteristics of the specific project. The biggest drivers are:
- Construction type and materials — combustible wood-frame ("frame") projects cost far more to insure than non-combustible steel or masonry, because fire is the dominant peril during construction.
- Total completed value and policy term — the limit is the finished value of the structure; longer builds (18-24 months) carry higher premiums and often require renewal or extension endorsements.
- Project type — new construction vs. renovation — remodels and additions to an existing occupied structure are riskier and may need a difference in conditions or existing-structure valuation.
- Location and catastrophe exposure — wind, hail, wildfire, and flood zones drive higher rates and often trigger a percentage wind/hail deductible instead of a flat one.
- Deductible and coinsurance selection — a higher deductible or an agreed-value clause that waives coinsurance changes the price meaningfully.
- Site security and protective safeguards — fencing, cameras, water-flow alarms, and a torch/hot-work permit program reduce theft and fire premiums.
- Coverage extensions selected — adding soft costs, debris removal, or off-site/transit limits raises the premium but closes real gaps.
Common misconceptions
Myth: My general liability policy already covers the building while it's under construction.
Reality: General liability covers third-party bodily injury and property damage you cause to others — it does not pay to repair the project itself if it burns or blows down. Builders Risk is first-party property coverage for the structure and materials you are building.
Myth: Builders Risk keeps protecting the building after construction is finished.
Reality: Coverage ends when the project is complete, occupied, or accepted by the owner (whichever comes first), so a permanent commercial property policy must be in place before that date to avoid a gap.
Myth: The policy limit should equal my construction budget or the land-plus-building cost.
Reality: The limit should equal the replacement cost of the completed structure — excluding land value — because most policies include a coinsurance clause that penalizes you at claim time if the reported value is too low.
Frequently asked questions
Who should buy the Builders Risk policy — the owner or the contractor?
Does Builders Risk cover theft of materials and tools on the jobsite?
Are flood and earthquake included?
What are 'soft costs' and should I add them?
How long does a Builders Risk policy last?
Sources cited
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