How to Properly Value Your Builders Risk Coverage

How much builders' risk coverage do you really need?

Too many people go with a ballpark figure—or just plug in the construction contract value and hope for the best. But that shortcut can cost you big if disaster strikes. Here’s what you need to know to accurately value your builders risk policy, so your project isn’t left underinsured—or overpriced.

Step 1: Understand What You’re Insuring

Builders risk should be based on the completed replacement value of the project—not just the labor or material cost.

That means including:

• Labor costs
• Material costs
• Overhead and profit
• Soft costs (if endorsed)
• Equipment and temporary structures

Don’t rely solely on your construction contract—it may not reflect true replacement cost or include change orders.

Step 2: Factor in Inflation and Price Escalation

Construction material costs are volatile. Lumber, copper, and concrete prices can spike mid-project. If you buy coverage based on today's prices, you might be underinsured 6 months from now. Consider an inflation guard endorsement that automatically adjusts your limit during the policy term.

Step 3: Account for Soft Costs

Soft costs include:

• Loan interest during delays
• Real estate taxes
• Permit or inspection fees
• Marketing and lease-up expenses
• Architect or engineering fees

These costs should be added into your policy limit if you have the proper endorsement.

Step 4: Include Site-Specific Costs

Are you in a remote or difficult-to-access location? Will you need extra demolition, debris removal, or environmental cleanup if there's a loss? ➡️ Include these line items in your estimated value.

Rule of thumb: If you’d have to pay for it again after a loss—it should be covered.

Example: Valuing a $2M Project

What Happens If You Undervalue?

If your project suffers a $500,000 loss and your policy is only valued at $1M (instead of $2M), the insurance company may only pay 50% of the loss due to coinsurance penalties. It pays to get the valuation right.

Final Tip: Work With a Pro - Builders risk valuation isn’t one-size-fits-all. The best way to get it right is to work with a commercial insurance advisor who understands your project, reviews your budget, and tailors the coverage accordingly.

Let’s Build a Smarter Policy - From valuation to exclusions to endorsements, we help builders and project owners avoid costly mistakes—and get the coverage they actually need. Talk to us before your next project breaks ground.

Resources:

• IRMI Builders Risk Valuation Tips
• AGC Cost Index Tracker