A building under construction is exposed to loss from fire, storm, vandalism, and theft before it has walls, security systems, or a permanent roof. Standard commercial property policies typically exclude buildings under construction — they're written for completed, occupied structures. Builder's risk is the policy that fills that gap, covering the project from groundbreaking through completion.
It's one of the most frequently misunderstood coverage lines in construction. Contractors assume the owner carries it. Owners assume the general contractor carries it. Subcontractors assume someone else carries it. When the wrong assumption meets a $400,000 fire loss, the party left holding the exposure learns the lesson the expensive way.
What Builder's Risk Insurance Is (and What It Isn't)
Builder's risk is a first-party property coverage — it pays for physical damage to the project under construction. It covers the structure, materials on-site, and in many forms, materials in transit or temporarily stored off-site. It does not cover:
- Liability — if someone is injured during construction, that's a general liability claim, not a builder's risk claim
- Your tools and equipment — contractor's equipment and inland marine covers your tools; builder's risk covers the project itself
- The land — land is never covered under any property policy
- Faulty workmanship or design errors — the cost to redo defective work is a business expense; builder's risk covers external perils, not construction defects
- Completed portions after acceptance — once the owner accepts and occupies a portion of the project, that portion typically needs to transition to a permanent property policy
Who Is Responsible to Buy It
The contract determines responsibility. Under AIA contract language (A201 General Conditions), the owner is typically required to purchase and maintain builder's risk unless the contract allocates that responsibility to the GC. Under different contract forms — or custom contracts drafted by either party — the responsibility can be placed on the GC.
In practice:
- Residential construction: Often the GC buys it, especially on spec builds. On owner-financed custom homes, the lender may require the owner to carry it as a loan condition.
- Commercial construction: Often the owner carries it, particularly on owner-occupied projects. On developer projects, the developer/GC relationship varies.
- Owner-builders: If the property owner is also the builder, they carry it.
The critical step: read the contract. Don't assume. If the contract requires the owner to buy builder's risk and they don't, the GC has a gap in project protection. If the contract requires the GC to buy it and they don't, the GC has both a gap and a contract breach. Confirm in writing who is carrying the policy before mobilization.
Named insureds on a builder's risk policy: A typical builder's risk policy names the project owner and the GC as named insureds, and lists subcontractors as additional insureds. All parties have an insurable interest in the project — this structure reflects that. Subcontractors who aren't named on the owner's or GC's policy may need their own coverage for their portion of the work.
What Builder's Risk Covers
The project itself
Builder's risk covers direct physical loss or damage to the project structure and materials. Most policies are written on an "all-risk" basis (or "open perils" in current policy language) — meaning they cover all causes of loss except those specifically excluded. Common covered perils include fire, lightning, windstorm, hail, theft, vandalism, explosion, and water damage.
In Texas, windstorm and hail coverage deserves specific attention. Texas weather — particularly along the Gulf Coast and in storm-prone corridors — can produce hail events that cause significant damage to partially completed structures. Builder's risk policies generally cover this, but in some coastal Texas counties, wind and hail coverage may be excluded or have separate sublimits. Check the policy form carefully for any Texas wind exclusions.
Materials on-site and in transit
Most builder's risk forms extend to cover materials and supplies intended for permanent installation that are stored on the project site. Many also extend to materials in transit to the project or temporarily stored off-site. Check the policy sublimits for each — off-site storage and in-transit coverage often have limits lower than the overall policy limit.
Soft costs
Some builder's risk policies include or allow endorsement for "soft costs" — the expenses incurred when construction is delayed by a covered loss. Architects' fees, engineering fees, loan interest, real estate taxes, and lost rental income are examples. A fire that destroys three months of work doesn't just cost the physical rebuild — it costs the holding expenses during the repair period. Soft costs coverage addresses this. It's not standard in all forms, so ask specifically about it if your project has significant carrying costs.
Builder's Risk Policy Structure
Completed value vs. reporting form
Builder's risk policies can be structured as completed value (the policy limit equals the projected cost of the completed project) or reporting form (the insured reports the project value monthly as it increases, and premium adjusts accordingly). Completed value is simpler and more common for single-project or small GC programs. Reporting forms are used by larger GCs managing multiple simultaneous projects.
Policy term
Builder's risk runs from project start to completion and owner acceptance. The policy term should match the projected construction schedule — typically 6, 12, or 18 months, with extension options if the project runs long. If the project isn't complete by the policy expiration and you haven't arranged an extension, you have a gap in coverage.
Deductibles
Builder's risk deductibles vary by policy and project type. A residential homebuilder might have a $2,500 to $5,000 deductible. A large commercial project might have $10,000 to $50,000. Wind and hail often carry separate, higher deductibles — in some Texas markets, wind/hail deductibles are expressed as a percentage of insured value (e.g., 1% to 2%) rather than a flat dollar amount. On a $2 million project, a 2% wind/hail deductible is $40,000.
What Builder's Risk Does Not Cover: The Common Gaps
Design errors and faulty workmanship
If a beam is installed incorrectly and fails, the cost to fix the beam is not a builder's risk claim — it's the contractor's problem. Builder's risk covers external perils that damage the project, not the cost of redoing work that was done wrong. If the faulty beam causes additional damage — it falls and damages adjacent framing — the resulting damage may be covered. The faulty workmanship itself is not.
Employee theft
Materials stolen by your own employees are typically excluded from builder's risk. Employee theft is a crime/fidelity coverage issue. If you're concerned about employee theft on a project, a separate crime policy or employee dishonesty endorsement addresses this.
Mechanical breakdown and equipment failure
If a crane motor fails and the crane drops a load into the structure, the equipment breakdown is not covered (that's equipment breakdown coverage). The damage to the structure from the dropped load may be covered as a resulting loss — again, the faulty work exclusion and what it damages is a key distinction.
Normal weather conditions
Rain damage to materials left unprotected, or frost damage to freshly poured concrete — when the contractor failed to take reasonable precautions — can be contested or excluded on the grounds that the contractor failed to follow reasonable construction practices. Document weather protection measures and their adequacy.
Occupancy
Many builder's risk policies include a provision that coverage ceases — or is materially limited — once any portion of the project is occupied. For phased projects where the owner moves into completed portions while construction continues, this is a real gap. The occupied portions need a permanent property policy; the policy structure must be coordinated to avoid an overlap or gap.
What Builder's Risk Costs in Texas
Builder's risk premiums are typically expressed as a rate per $100 of insured value, or as a percentage of project cost. General ranges for Texas residential and commercial construction:
| Project type | Approximate rate | Example: $500K project |
|---|---|---|
| Residential new construction | 0.75%–1.5% of project value | $3,750–$7,500/year |
| Light commercial, ground-up | 1.0%–2.5% of project value | $5,000–$12,500/year |
| Commercial renovation/remodel | 1.5%–3.5% of project value | $7,500–$17,500/year |
| High-value, complex construction | 2.0%–4.5%+ of project value | Varies widely by risk |
These ranges are directional. Actual pricing depends on construction type (wood frame vs. masonry vs. steel), project location (coastal Texas carries higher wind/hail risk), project duration, prior loss history, and the current state of the commercial property market. Texas coastal counties may have separate pricing or coverage conditions for wind and hail.
Builder's Risk vs. Installation Floater for Subcontractors
If you're a subcontractor — a mechanical contractor, an electrician, a plumber, a tile installer — the owner's or GC's builder's risk policy likely names you as an additional insured and covers the project. But it may not cover everything you need:
- Materials you've purchased but not yet incorporated into the project
- Materials stored at your shop or off-site
- Equipment installed but not yet formally accepted by the GC
An installation floater is the sub's answer to these gaps — it covers materials and equipment from the time you take possession through installation and acceptance. If you're a sub doing significant material purchases for large projects, an installation floater (or confirming your coverage under the builder's risk policy) is worth discussing with your broker. See our related guide on builder's risk vs. installation floaters for subs.
Frequently Asked Questions
Does the GC's general liability policy cover the project if it burns down?
No. General liability is a liability coverage — it covers claims by third parties for bodily injury and property damage caused by the GC's operations. It does not cover the physical structure under construction as a first-party property claim. That's builder's risk's job.
My lender requires builder's risk. What limit should I carry?
The limit should equal the total completed project cost — not the land value, not the current value of work in place, but the full cost to complete the project from scratch. This ensures you can rebuild if there's a total loss at any point during construction. Underinsuring to save premium creates the coinsurance problems described elsewhere in our underinsurance analysis.
When does builder's risk end and a permanent property policy begin?
Typically at final completion and owner acceptance. The specific trigger is defined in the policy — it may be certificate of occupancy, final inspection, or the owner taking possession. The transition from builder's risk to a permanent property policy must be coordinated so there's no gap between the two. This requires advance planning with your broker.
Can a homeowner buy builder's risk on a house they're having built?
Yes. Homeowners building a custom home can purchase owner's interest builder's risk. The GC may carry their own policy, or the contract may require the owner to buy it. If you're an owner building a home, ask your GC specifically who is carrying builder's risk and request to be named on the policy — or purchase your own if the contract places that obligation on you.
For the complete picture of construction insurance in Texas, see our construction insurance guide and the related piece on general contractor insurance in Texas.