Eli Porter
It is estimated that construction site fires in the U.S. result in a direct property loss of around $376 million on an annual basis. In case you are thinking of a build or a renovation, builder’s risk insurance is actually the thing that will keep you from facing a financial disaster that, most probably, would have killed your project instantly. Here is the price and factors affecting it, in detail.
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How Much Does Builders’ Risk Insurance Cost?
One cannot simply say how much it is going to cost, as it is a variable. It is very much a function of the value of your project, but also a few other factors. Most people end up paying in the range between 1%-4% of the total completed value of their construction project.
For very small operations and homeowners, the best estimate for the average premium per month is about $105/month or $1,259 per year, but this can vary a lot depending on circumstances.
The starting point for the policies is approximately $375 for very small projects. If you are involved in large commercial buildings, then the annual premiums can go way over $5,000.
Real Cost Examples by Project Size
Here is how cost typically looks across different project types:
| Project Type | Project Value | Estimated Annual Premium |
| Small renovation | $100,000 | $1,000 – $5,000 |
| Residential new build | $500,000 | $5,000 – $20,000 |
| Commercial new construction | $3,000,000 | $45,000 – $120,000 |
| Large commercial renovation | $2,000,000 | $20,000 – $80,000 |
These figures reflect standard coverage. Adding flood or earthquake protection pushes costs higher.
Why Costs Vary So Much
Every construction project poses a different level of risk. Insurance companies consider various factors to work out your specific premium. Knowing these factors will not only help you make a more precise budget but also identify potential saving areas.
Major cost factors are:
- Project value — the higher the total construction cost, the higher your insurance coverage needs to be, and the more you pay
- Project type — remodeling and renovation usually involve higher insurance premiums than new constructions, as working with the existing structure adds complexity.
- Physical materials — wooden buildings are more susceptible to fire, and therefore, insurance premiums will be much higher in comparison to masonry and steel buildings
- Geographic location — If a construction site is in the vicinity of a flood zone, wildfire area, coastline, or high-crime area, the insurance cost will be higher than usual
- Project duration — since a 24-month project lasts longer, it involves more risk and hence costs more than an 8-month one
- Number of workers — having more workers gives rise to theft, accidents, and incidents.
What Does Builders Risk Insurance Actually Cover?
Builders’ risk insurance, also known as course of construction insurance, is temporary property coverage that protects your project from the moment of groundbreaking up to the time a certificate of occupancy is issued. After the construction is done, the policy terminates, and you move to a permanent property insurance plan.
A basic draft includes:
- The physical frame of the building as it is being constructed
- Materials on site that are waiting to be installed
- Materials that are being delivered to your construction site
- Temporary structures such as scaffolding and construction site offices
- Construction signs and fencing
- Blueprints and electronic media are kept on the premises
Usually, your standard builders’ risk insurance policy does not automatically provide coverage for floods and earthquakes. Such coverages are available through endorsements at a higher price. Injured workers also are not covered, and the injured employee’s compensation is provided by the workers’ compensation insurance.
What About Soft Costs?
Soft costs are a type of coverage that some insurance companies offer. They refer to the economic losses caused by the delays in construction, rather than the physical damages. Some examples are additional loan interest, loss of rental income on a commercial property, and extra real estate taxes that accumulate because your project took longer than expected.
Soft cost is not a standard feature of every policy. If any delay in your project would cause significant financial problems, you may want to check with your insurance company if they cover it.
Who Needs It and When to Buy
If you are starting a construction project, then getting builders’ risk insurance is a must. In fact, you should get one even for pre-construction activities like site clearing, excavation, and material staging, since these also expose you to the risk.
Usually, the following persons need this type of insurance:
- Homeowners who are either constructing a new house or renovating an old one
- General contractors who have been assigned insurance responsibility by the contract for their projects
- Developers of property who are constructing for sale or lease
It is almost certain that the lender will require it. The lender of your construction loan will make insurance coverage one of the conditions for funding. In addition, government contracts and many local permit offices will also require you to show proof of an active policy before you can start the work.
Deductibles and How to Manage Them
Usually, builders’ risk deductibles range from $2,500 to $10,000 per incident. You can reduce your premium by opting for a higher deductible. By simply increasing your deductible from $2,500 to $10,000 on a $500,000 project, you may end up saving $500 to $1,500 on your total premium. This type of exchange is ideal when you have the financial capability to cover a significantly larger out-of-pocket expense if a claim occurs.
Plans can be set for periods of 3, 6, 9, or 12 months. In case your work is delayed beyond the expected time, you should contact your insurer to request an extension before the policy expires. Being without any coverage between the end of your builders’ risk policy and the beginning of your permanent property policy is definitely dangerous.
You may also read: Does Renters Insurance Cover Wildfires?
The Bottom Line on Cost
Typically, builders’ risk insurance represents 1% to 4% of the total construction cost for most jobs. The insurance for a renovation worth $100,000 might range from $1,000 to $5,000. For a home worth $500,000, it can be anywhere from $5,000 to $20,000. Your location, choice of materials, type of project, and duration are the factors that will determine your final figure.
Once you have your coverage ready prior to the commencement of construction, you can rest assured that it is one of the few measures that protect your project from the first day of the work to the day it is handed over to the owner.
Do you want builders’ risk insurance quotes? Head over to insurancheck.com to compare providers, review coverage options, and select the best policy for your project at a price that you can afford.
