insurance

Builders Risk Insurance

Builders risk insurance is a specialized property insurance policy that covers buildings under construction and the materials used in construction. It protects against damage from events like fire, wind, theft, and vandalism during the building process.

Example

“The contractor purchased builders risk insurance to protect the new office building against fire damage during the six-month construction period.”

Memory Tip

Think 'Build-Risk' - while you BUILD, you need coverage for the RISK of damage to your unfinished structure.

Why It Matters

Without builders risk insurance, property owners and contractors could face massive financial losses if a partially completed building is damaged by storms, fire, or vandalism. This coverage ensures construction projects can continue even after unexpected setbacks, protecting significant investments in materials and labor.

Common Misconception

Many people think their regular property insurance covers buildings under construction, but standard policies typically exclude coverage during construction phases. Builders risk insurance is specifically designed to fill this gap and must be purchased separately.

In Practice

A homeowner building a $500,000 custom house purchases builders risk insurance for $2,500 annually. When a storm damages $75,000 worth of framing and roofing materials, the insurance pays the claim minus a $5,000 deductible. Without this coverage, the homeowner would have paid the entire $75,000 out of pocket, potentially delaying or halting construction.

Etymology

The term combines 'builders' (those who construct) with 'risk' (potential for loss), originating from the construction industry's need for specialized coverage during vulnerable building phases.

Common Misspellings

builders rick insurancebuilder's risk insurancebilders risk insurancebuilders risk insurence

More in insurance

Other insurance terms you should know

deductibleThe amount you pay out-of-pocket before your insurance begin…insurance premiumThe amount paid periodically to an insurance company in exch…deductibleThe amount a policyholder must pay out of pocket before insu…copayA fixed amount paid by an insured person at the time of a me…coinsuranceA cost-sharing arrangement where the insured pays a percenta…out-of-pocket maximumThe most an insured person will pay for covered healthcare s…