Question 1

What are common builders risk insurance exclusions?

Accepted Answer

Builders risk insurance exclusions are specific causes of loss that a policy will not pay for, even though the structure itself is otherwise insured. Common exclusions include:

Faulty workmanship or design errors
Wear and tear or gradual deterioration
Mechanical breakdown
Employee theft
War, government action and nuclear hazard
Earth movement and flood, though both can often be added back through an endorsement for an additional premium

Because exclusions vary by insurer and by project type, reviewing the specific policy language against the project's location, materials and construction method is the most reliable way to identify gaps before they become a problem. Organizations working with an advisor to structure their builders risk coverage are better positioned to close these gaps before a loss occurs rather than after.

Question 2

Is builders risk insurance required?

Accepted Answer

Builders risk insurance is not required by law in most jurisdictions, but it is frequently required by contract. Parties that commonly require proof of coverage before work begins include:

Lenders financing a construction project
General contractors hiring subcontractors
Property owners entering a construction agreement

Even when no contract mandates it, builders risk insurance protects the party bearing financial risk for the project's materials and structure during construction when standard property insurance typically does not apply. Organizations structuring builders risk coverage early in the project timeline are positioned to meet contractual requirements without delays to the construction schedule.

Question 3

What does builders risk insurance not cover?

Accepted Answer

Builders risk insurance does not cover categories of loss outside the physical structure and materials being built, even when those losses relate to the same project. Categories typically excluded include:

Third-party bodily injury or property damage liability, which falls under general liability insurance
The existing structure in most renovation projects, unless specifically added
Contractors' tools and equipment
Employee injuries, which fall under workers' compensation
Business income lost due to a construction delay, unless a delay in completion endorsement is purchased separately

Organizations building a complete risk management strategy for a construction project typically pair builders risk insurance with general liability, workers' compensation and, where relevant, delay in completion coverage to close these gaps.

What kind of damage does builders risk insurance actually cover?