Builder’s Risk Insurance for New Apartment Construction: What You Need to Know
If you’re planning a ground-up construction project for a new apartment building, securing the right insurance coverage is essential. One of the most critical policies you’ll need is Builder’s Risk Insurance. This specialized coverage protects your investment during the construction phase, from the first shovel in the ground to the final walkthrough.
In this guide, we’ll cover everything you need to know about builder’s risk insurance for apartment buildings, including coverage options, cost factors, and why it’s crucial for real estate developers and contractors alike.
What Is Builder’s Risk Insurance?
Builder’s Risk Insurance (also called course of construction insurance) is a specialized type of property insurance that covers buildings under construction. It protects against losses caused by:
- Fire and smoke
- Theft and vandalism
- Wind and hail damage
- Water damage (non-flood)
- Explosion
- Lightning
This coverage is temporary, generally lasting for the duration of the construction project. Once construction is completed and a certificate of occupancy is issued, the policy is typically replaced by a permanent commercial property insurance policy or landlord insurance.
Why Is Builder’s Risk Insurance Essential for Apartment Construction?
When building an apartment complex, the financial exposure is high. Between labor, materials, equipment, and financing costs, a loss during construction can cost hundreds of thousands to millions of dollars.
Here’s why you need Builder’s Risk Insurance for apartment construction:
- Protects against unexpected property damage
- Meets lender insurance requirements
- Covers on-site materials and temporary structures
- Reduces financial losses from construction delays
Many construction lenders will require proof of builder’s risk coverage before releasing funds.
Who Should Purchase the Policy?
The following parties may need or benefit from carrying a builder’s risk policy:
- Real estate developers
- Property owners
- General contractors
- Construction managers
- Lenders or investors
Typically, the party with the most significant financial stake in the project—usually the developer or owner—will be the named insured on the policy.
What Does Builder’s Risk Insurance Cover?
Here are some key coverages you can expect from a standard builder’s risk insurance policy for apartment construction:
1. Building Under Construction
Protects the value of the partially completed apartment building, including labor and materials.
2. On-Site Materials
Covers building materials stored on the construction site, even if not yet installed.
3. Materials in Transit
Protects against loss or damage while materials are being transported to the site.
4. Temporary Structures
Scaffolding, fencing, and construction trailers can be covered under the policy.
5. Soft Costs (Optional)
Soft cost coverage helps recoup financial losses from delays caused by a covered claim—such as interest on loans, architectural fees, legal expenses, and permit costs.
What Builder’s Risk Insurance Does Not Cover
Most builder’s risk policies exclude:
- Employee theft
- Normal wear and tear
- Faulty design or workmanship
- Earthquake and flood (unless added by endorsement)
- Mechanical breakdowns
- Liability claims (covered under a general liability policy)
Cost of Builder’s Risk Insurance for Apartment Buildings
The average builder’s risk insurance cost ranges from 1% to 4% of the total construction budget. For a $5 million apartment project, that could mean premiums between $50,000 and $200,000.
Key Cost Factors:
- Total construction value
- Location and natural hazard risk (e.g., flood or wildfire zones)
- Type of construction (wood-frame vs. steel/concrete)
- Security and safety measures on-site
- Length of construction timeline
- Coverage limits and deductibles
Pro tip: Always get multiple quotes from insurance carriers that specialize in commercial construction insurance.
How Long Does Builder’s Risk Insurance Last?
Builder’s risk policies are usually written for 6, 9, or 12 months, depending on your estimated construction timeline. If your apartment project is delayed, many insurers offer extensions, though they may require underwriting approval.
✅ Do I need builder’s risk insurance to get a construction loan?
Yes. Most lenders require proof of builder’s risk coverage before funding a construction loan for apartment buildings or any commercial project.
✅ Can I add flood or earthquake coverage?
Yes. Flood and earthquake protection can be added via policy endorsements, depending on the insurer.
✅ What happens when construction is finished?
Once the apartment building is complete and a certificate of occupancy is issued, the policy should be replaced with permanent property coverage (e.g., landlord insurance or commercial property insurance).
Final Thoughts
Builder’s Risk Insurance is a critical safeguard for any ground-up apartment development project. It protects your project from unexpected property damage, satisfies lender requirements, and ensures your financial stability during construction.
Before breaking ground, consult an insurance professional experienced in commercial construction coverage. A properly tailored builder’s risk policy can be the difference between a project setback and a financial disaster.
Ready to Get a Builder’s Risk Insurance Quote?
If you’re developing an apartment building and need expert guidance or a fast insurance quote contact us to protect your investment.
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