Top Builders Risk Insurance Mistakes Property Owners Should Avoid

Nate Jones, CPCU, ARM, CLCS, AU
2 days ago
2 min read

Builders risk insurance is one of the most important coverages during construction or renovation—yet it’s also one of the most misunderstood. Property owners often assume they’re protected, only to discover costly gaps after a loss.

Below are the top builders risk insurance mistakes property owners should avoid to keep projects protected from start to finish.

1. Assuming the Contractor’s Insurance Is Enough

One of the biggest mistakes property owners make is assuming a contractor’s insurance replaces builders risk insurance.

In reality:

General liability insurance does not cover damage to the structure
Contractor-provided builders risk may have limited coverage
Owners lose control over policy limits and endorsements

The National Association of Home Builders stresses the importance of clearly defining insurance responsibilities in construction contracts.

2. Underinsuring the Project Value

Builders risk insurance should reflect the full completed value of the project, not just the current phase of construction.

Underinsuring can result in:

Coinsurance penalties
Partial claim payments
Significant out-of-pocket costs after a loss

The Insurance Information Institute notes that inadequate limits are a common cause of uncovered construction losses.

3. Not Extending Coverage for Delays

Construction delays are common due to weather, labor shortages, and material supply issues.

A frequent mistake is failing to:

Monitor policy expiration dates
Request extensions before coverage ends
Adjust timelines as the project evolves

Once a builders risk policy expires, the project may be uninsured—even if work is still ongoing.

4. Overlooking Key Exclusions

Many property owners don’t review policy exclusions until after a claim.

Common exclusions include:

Flood and earthquake damage (without endorsements)
Faulty workmanship or design defects
Wear and tear or gradual damage

Flood coverage may require a separate policy through the National Flood Insurance Program.

5. Not Covering Materials in Transit or Off-Site

Builders risk insurance may not automatically cover materials stored off-site or in transit.

Failing to add this coverage can leave losses uninsured if:

Materials are stolen before delivery
Supplies are damaged during transportation
Storage facilities suffer fire or water damage

Owners should confirm whether off-site materials are included.

6. Allowing Coverage to End Too Early

Builders risk insurance often terminates when:

The project is completed
The building is occupied
A certificate of occupancy is issued

Temporary occupancy—even partial—can cancel coverage. The National Association of Insurance Commissioners advises coordinating coverage transitions carefully.