Avoid These 5 Common Builders Risk Mistakes | The Oversights That Could Derail Your Entire Construction Project

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Builders risk insurance is designed to protect your project from the unexpected—but what if you buy the policy and still end up exposed? That happens more often than you’d think. Why? Because there are common mistakes builders, developers, and even experienced project managers make when purchasing coverage. Here’s the good news:

Avoiding these mistakes is easy when you know what to look for.

Let’s walk through the 5 biggest builders risk mistakes—so you can make sure your next project is protected from day one.

Mistake #1: Starting the Policy Too Early or Too Late

The issue: Coverage is only triggered once specific conditions are met—usually when materials arrive on-site or actual construction begins.

If you start the policy too early:

• You waste money on days where there’s no risk exposure.
• You may use up your coverage term before the project even starts.

If you start it too late:

• Any loss occurring before the effective date is not covered.

Real-world example:
A contractor ordered trusses to the site a week before the builders risk policy began. A storm destroyed the materials, and the insurer denied the claim because it occurred outside the policy period.

Fix it: Work with your insurance advisor to sync the policy’s start date with your site prep or material delivery schedule.

Mistake #2: Underinsuring the Project

The issue: Many people set the policy limit based on contract price alone, without accounting for:

• Material cost inflation
• Soft costs (loan interest, design fees)
• Change orders or project scope creep

This leaves you underinsured—and paying out of pocket for anything above the limit.

Fix it: Base your limit on total completed value (including labor, materials, soft costs, and anticipated changes). And consider including a cushion for price increases.

Mistake #3: Excluding Flood or Earthquake Coverage

The issue: Builders risk doesn’t automatically include flood, earthquake, or windstorm damage in many parts of the country—including coastal or high-risk zones.

Even inland projects may be vulnerable to flash floods or shifting soil conditions.

Fix it:
Ask if flood, wind, and earthquake coverage are excluded—and request endorsements or a standalone policy if needed. This is especially critical if:

• You’re building in FEMA flood zones
• The site has poor drainage or sits near water
• You’re in a region with known seismic activity

Mistake #4: Ignoring Soft Costs

The issue: Builders risk policies typically cover direct construction costs (labor, materials), but soft costs like loan interest, engineering fees, and permits can be significant—and are usually not covered unless specifically endorsed.

If your project is delayed due to a covered loss, you could still face tens of thousands in soft cost losses with no insurance to reimburse them.

Fix it: Add a soft costs endorsement to your policy, and work with your insurance advisor to calculate and itemize these costs accurately. Don’t assume they’re automatically included.

Mistake #5: Forgetting to Insure Materials in Transit or Off-Site

The issue: Standard builders risk usually covers materials only once they’re on the job site. If you have high-value materials:

• Sitting in a warehouse
• Being trucked across the country
• Staged at a laydown yard

…they may not be covered.

Fix it: Add property in transit and off-site storage endorsements. Customize limits based on your supply chain.

Recap: Your Builders Risk Safety Checklist

Before you buy, make sure you:

• Set correct start/end dates
• Use accurate project valuation (including soft costs)
• Add flood, wind, or earthquake if needed
• Include soft cost coverage for delays
• Add transit and storage protection

Need a Second Set of Eyes on Your Builders Risk Policy?

We work with builders, developers, and property owners every day to eliminate gaps and reduce risk. Before your next project kicks off, let’s talk about how to build smarter coverage into your budget.

Helpful Resources:

• IRMI on Builders Risk Exclusions
• FEMA Flood Maps Tool
• AGC Guide to Construction Insurance Gaps

 

 

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