Is Builders Risk Insurance Required for Ground-Up Construction Projects?
- Jan 9
- 2 min read
When starting a ground-up construction project, one of the first insurance questions property owners ask is whether builders risk insurance is required. While it may not always be mandated by law, skipping builders risk insurance can expose owners and developers to major financial risk.
Here’s what you need to know about builders risk insurance requirements for ground-up construction projects.
Is Builders Risk Insurance Legally Required?
In most states, builders risk insurance is not legally required by statute. However, that doesn’t mean it’s optional in practice.
Builders risk insurance is often required by contract or lender, not by law. Construction agreements and financing terms frequently mandate coverage before work begins.
The National Association of Insurance Commissioners explains that builders risk insurance is a common contractual requirement for construction projects due to the high exposure to loss.
When Builders Risk Insurance Is Required for Ground-Up Construction
Builders risk insurance is typically required when:
A lender is financing the project
A construction loan is involved
The contract requires the owner to insure the structure
Significant materials are stored onsite
The project value is substantial
Most lenders will not release funds until builders risk insurance is in place, listing them as a loss payee.
Why Ground-Up Construction Needs Builders Risk Insurance
Ground-up construction projects face higher risk because the structure is fully exposed during early phases. Builders risk insurance commonly protects against:
Fire and smoke damage
Wind, hail, and storm losses
Theft of materials and supplies
Vandalism and malicious mischief
Certain types of water damage
According to the Insurance Information Institute, buildings under construction are more vulnerable to loss because safety systems are often incomplete.
Can Contractors’ Insurance Replace Builders Risk Coverage?
A common misconception is that a contractor’s insurance eliminates the need for builders risk insurance.
In reality:
General liability insurance does NOT cover property damage to the structure
Contractors may carry builders risk insurance, but limits and endorsements may be insufficient
Owner-provided builders risk insurance offers greater control and protection
The National Association of Home Builders advises clearly defining insurance responsibilities in construction contracts to avoid coverage gaps.
What Happens If You Skip Builders Risk Insurance?
Without builders risk insurance, losses during construction may result in:
Out-of-pocket repair or rebuild costs
Construction delays and financing issues
Disputes between owners, contractors, and lenders
Project shutdowns after major losses
For ground-up construction, even a single fire or storm can result in hundreds of thousands of dollars in uninsured damage.
How Wexford Insurance Supports Ground-Up Construction Projects
At Wexford Insurance, we help property owners, developers, and investors determine whether builders risk insurance is required and structure policies correctly. We assist with:
Meeting lender and contract requirements
Setting accurate replacement cost limits
Adding endorsements like flood or wind coverage
Coordinating transitions to permanent property insurance
👉 Request a builders risk insurance quote from Wexford Insurance today to protect your ground-up construction project from day one.
