Builders Risk Insurance: What to Check Before You Sign

Are you building or remodeling? Make sure builders risk is sorted out before work starts. In California, this is often called course of construction insurance. It is the same coverage, just a different name.

This article is for general education. Builders risk policies can differ depending on the insurance company and policy details, so use this as background information, not as specific advice for your project. Always talk to your broker before buying or finalizing coverage.

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The framing is done. The windows are still in transit. Your lender needs proof of insurance by Friday.

This is often when builders risk insurance comes up: at the last minute, rushed, and based on guesses.

The initial application might look simple. It asks for a value, an address, and a start date. But your answers determine what gets paid if a fire, theft, or storm hits right before the drywall goes up.

Here are the things we go over with clients before they sign.

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What’s the total completed value of your project?

Builders risk insurance is based on the total completed value of your project. This means not what is there today, but what it will be worth when everything is finished.

That number is more than lumber and labor. It usually includes:

• Hard costs: materials and labor, including items like windows, landscaping, and pools.
• Design costs: architect fees, site lighting, existing-site analysis, and zoning changes.
• Overhead: payroll, utilities, and administrative costs.
• Profit: the contractor's margin, if it is included.

Adding these costs to your project value does not mean you are covered for delays. Extra expenses like additional loan interest or lost rent while repairs are made are usually optional add-ons. Ask your broker what options are available for your project.

Earthquake and flood coverage are usually not included unless you add them. This is especially important in California.

If you underestimate your project’s value, you might not have enough coverage when you need it most.

Projects often change. Material prices can rise and change orders can add up. Plan to review your coverage halfway through the project to make sure the value is still accurate. If it has increased, you can usually update your policy, but only if you do it before a loss occurs.

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New build or remodel?

New construction is ground-up. Nothing stood there before, and the building has not been put to use.

A remodel changes a structure that already exists, including an addition. In some cases, a teardown that keeps the foundation counts as a remodel too.

The scope of your project is just as important as what you call it, and underwriters will ask about the details. One program we use sorts remodels into three categories:

• Basic: interior finishes, paint, fixtures, cabinets, flooring. Nothing structural.
• Minor structural: doors, windows, skylights, roof replacement, ground-floor additions, and systems like HVAC, plumbing, and electrical.
• Major structural: load-bearing walls, added stories, new stairs or elevators, retrofits, foundation work. Expect stamped engineering plans and an underwriter's review.

Be honest when describing the work. For example, a kitchen update that ends up removing a bearing wall is a different risk. Let your broker know before the scope changes, not after.

Many builders risk policies don't cover the existing house unless you add it as coverage, so ask if yours does. If it does, ask two more things: How is the existing house valued? Some carriers use actual cash value, capped at market value. Also, what does the policy say about periods when no work is happening? If work stops for a while, your coverage could change.

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Deductibles that move

Many builders risk deductibles are set as a percentage instead of a flat dollar amount.

A percentage of what? That depends on your policy. Some deductibles are based on the total completed value, while others use the value at risk on the day of the loss.

The same percentage can mean very different amounts. Ask your broker which one applies to your policy.

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When coverage starts and stops

Builders risk insurance has a set term. Coverage usually ends when the term expires, or when the building is finished, occupied, or used for its intended purpose, whichever happens first. Moving in early can end your coverage.

Terms are often six, nine, or twelve months, and bigger projects can take longer. Choose a term that matches a realistic schedule, not just the one you hope for.

This is important to note, and often overlooked: Extensions are not automatic. If your project takes longer than planned, you usually need underwriter approval for an extension before your policy expires. Start that conversation early, not one week before the policy expires.

When you buy your policy matters too. Projects that are already well underway get more scrutiny, and some carriers require extra review if the project is more than 30% complete.

Expect the premium to be fully earned. If you finish your project early, you usually will not get a refund.

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For contractors running more than one job

Contractors who have steady work may benefit from a reporting form policy. This is a single ongoing policy that stays active until canceled, and you report your projects either monthly or annually.

A few things to double-check up front:

• Compare monthly and annual reporting against your average project length.
• List every state where you build.
• Report the total completed value of each project, not just what you have spent so far.
• Report only eligible projects, and check whether your policy covers the existing building during renovations. For example, one program we use does not, so those jobs need a separate single-project policy.

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Sign it and keep it

Read your application carefully before you sign it, and save a copy.

Insurance companies can ask for your application during a claim investigation. You do not want to be in a situation where you have to say, "I think the broker filled that in."

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FAQ

Is builders risk the same as course of construction insurance?
Yes. Course of construction is the term often used in California for the same coverage.

Who buys builders risk insurance, the owner or the contractor?
Either one can, and the construction contract usually says who is responsible. Read that section before anyone buys coverage so you do not end up with two policies or none at all.

Does your homeowners policy cover a remodel?
Sometimes, but don't count on it. Smaller projects in a house you still live in may be covered, but major work, moving out, or theft of materials during construction often isn't. Let your homeowners insurance company know before you start, because some will require a builders risk policy. Even for smaller projects, ask your contractor for a certificate of insurance showing general liability and workers' compensation, and ask to be added as an additional insured on their general liability policy. That way, if their work causes an injury or damage, their policy responds first, not yours. If the contract asks you to waive subrogation, check with your insurer before you sign.

Can you cancel if the project finishes early?
You can end the policy, but builders risk premiums are usually fully earned, so you should expect little or no refund.

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Talk to us before you bind

We place builders risk for our existing personal and commercial insurance clients, not as a stand-alone account. Are you finally building something you have wanted for years? Bring us your budget, contract, and schedule before you buy insurance. We will help you figure out the right value, choose the right term, and spot any gaps while they are still easy and affordable to fix.

Start at app.falconwest.com/welcome or email hello@falconwest.com.