When do I need builders risk insurance for an apartment project?

Builders risk insurance is needed during any apartment construction or major renovation project. This includes new ground-up construction, gut renovations of existing buildings, significant additions such as new floors or wings, and conversion projects (such as converting a commercial building into apartments). The policy should be in place before construction begins and remains in effect until the project is completed and a certificate of occupancy is issued.

During construction, the building is especially vulnerable. The structure is open to weather, combustible materials are present throughout the site, and access is difficult to control. A fire, storm, or theft event at a construction site can result in hundreds of thousands or millions of dollars in damage to the work completed and materials on site. OSHA construction standards (29 CFR 1926) impose fire prevention, fall protection, and site safety requirements during construction, but compliance with these standards does not eliminate the need for builders risk coverage.

Standard commercial property insurance does not cover buildings under construction. The property policy is designed for completed, operating buildings and its terms do not account for construction-phase risks. Without builders risk coverage, any damage to the project during construction is an uninsured loss borne by the owner, developer, or general contractor depending on the contract terms. HUD's MAP Guide (Chapter 7) requires builders risk coverage on all FHA-insured multifamily construction projects, and Fannie Mae's Multifamily Selling and Servicing Guide (Part III, Chapter 6) requires builders risk for any substantial renovation financed under its programs. The cost of builders risk insurance is typically 1% to 4% of the total construction value, which is a modest expense relative to the total project budget.