Tools of the Trade: Builder’s Risk Insurance

Any builder, whether constructing homes for a new subdivision or building a new home for his family, should consider getting builder’s risk insurance if he has not already done so. Not only does builder’s insurance cover the cost of the materials used to build the structure, but the cost of the labor as well. This provides contractors and other building professionals with peace of mind, knowing that a significant investment of time and materials will not be lost should the town be hit by a tornado, serial vandalism or other construction-wrecking malady.


The typical builder’s risk insurance policy covers damage occurring in the event of theft, vandalism, vehicles, fire and explosions. It also covers loss from natural disasters such as lightning, hail and high winds. Check with your insurer to make sure a policy includes all of these things, as not all policies cover all possible scenarios.


Exclusions for this type of policy are numerous, and often include scenarios such as earthquake, water damage, war and employee theft. Builder’s risk insurance also does not typically cover contract penalties, mechanical breakdowns and the other risks you incur simply by doing business as a contractor.

Additional Coverage

Ask your insurance agent about coverage for specific scenarios you might be concerned about.

For example, in some areas, it is possible to obtain limited coverage in the event of earthquake. You can also ask that a policy provide coverage for building materials that are being transported from one location to another.


Note that builder’s risk insurance only covers the risk to you, not to others. It will not cover the theft of equipment left on the job site by a subcontractor, for example. It does not cover injuries suffered by others on your site. Tools and other equipment are not covered.

Once the building is complete, you will need to switch to a different policy, as builder’s risk insurance is only effective during the building process. Should anything happen during the construction phase, however, you are certain to be glad you had your investment covered.