Fully Earned vs. Pro Rata Premium: What Builders Risk Agents Need to Know

What should your builders risk clients expect if their construction project wraps up early or the policy is cancelled?

It’s one important detail you’ll be glad you walked through before securing coverage.

There are two primary premium options available for projects secured under the Builders Risk Plan insured by Zurich: fully earned premium and pro-rata premium. Understanding the differences may help you feel more confident explaining coverage options, setting clear expectations and avoiding claim mishaps.

Let’s break down what these terms mean, which policies qualify for each and how state regulations may affect eligibility.

How do insurance premiums work?

Insurance premium is the amount your clients pay for coverage. These payments are typically made monthly, semi-annually or annually.

In general, builders risk insurance cost is calculated based on five major factors: project type, location, construction type, optional coverage and additional fees and taxes.

If your construction client does not pay their premium, the policy will be cancelled and they will not have financial protection should a claim occur. 

What does "fully earned premium" mean?

Fully earned premium means the premium is considered earned once coverage begins. In other words, no premium will be refunded if the coverage ends or the policy is cancelled.

With the Builders Risk Plan insured by Zurich, pricing is based on approximately six months of coverage, while many policies provide up to 12 months. So, clients can enjoy the benefit of a year of reliable protection for half the cost.

According to the U.S. Census Bureau, the average time it takes to build a single-family home is around seven and a half months. Add in variables such as weather delays, labor shortages, material availability or permitting challenges, and construction schedules can quickly change.

With a fully earned policy in place, homeowners and contractors can move forward with confidence knowing their project remains protected if plans change. Highlighting these factors with your client can help them understand not only what to expect, but the benefits this coverage offers. To determine whether fully earned premium applies to their policy, review the policy’s declaration page. 

Which builders risk policies are fully earned? 

Most policies under the Builders Risk Plan insured by Zurich are fully earned once coverage begins, with a few key distinctions. 

There are four primary policy types available:

1. Single project / one-shot policy
2. Reporting form policy
3. Blanket deposit premium policy
4. Blanket installation policy

One-shot, blanket installation and reporting form policies are fully earned in most states.

Blanket deposit — or deposit premium — policies may be cancelled pro-rata unless negotiated differently subject to the policy’s minimum premium. 

Residential New Construction

One-to-four-family unit homes, including but not limited to custom, modular and tract homes are classified as residential construction under the Builders Risk Plan insured by Zurich. 

• First term (12 months): All residential new construction policies are fully earned unless dictated otherwise by the state.
• Second term (if applicable): The project is fully earned if the project value is under $1M. If the project value exceeds $1M, cancellation with returned premium may be available unless the terms were negotiated differently when the policy was issued.

Commercial New Construction

Commercial builders risk policies offer additional premium and cancellation options depending on type and project value. Eligible commercial projects under the US Assure Builders Risk Plan insured by Zurich may include apartment complexes (five or more units), office buildings, retail spaces, cell towers, schools, hospitals, parks and more.

Commercial New Construction Valued up to $10M (Coverage Form 40471) 

• Project valued less than $1 million: Fully earned premium applies.
• Project valued at or over $1 million (but less than $10 million): Cancellation available in both the first and second term.

Commercial New Construction Valued Over $10M (Coverage Form 40660) 

• A minimum earned premium can often be negotiated at policy inception.
• Policy cancellation is available.

Residential and Commercial Remodeling 

All remodeling policies are fully earned in most states, even if a project finishes early. 

What does "pro-rata premium" mean? 

Pro-rata cancellation offers a different premium structure that may be appropriate for certain project types and policy forms. If a policy qualifies:

• The premium is earned only for the time coverage was in force.
• Any unused portion of payment may be returned to the policyholder. 

Although most builders risk policies are fully earned, some may qualify for pro-rata cancellation based on state insurance requirements or underwriting guidelines.

Deposit Premium policies and commercial builders risk policies for projects greater than $10 million may be cancelled pro-rata unless negotiated differently subject to the policy’s minimum premium.

Unsold Dwelling policies, which provide coverage for new construction that’s either near completion, or complete and waiting for sale, are also eligible for pro-rata cancellation. 

Why this matters to your clients 

When construction timelines and circumstances change, your clients need to know what that means for their builders risk coverage. Whether a policy is fully earned or eligible for pro-rata cancellation, understanding the difference allows you to manage expectations early and position your clients for a smoother insurance experience.

To set expectations with your clients and avoid bumps in the road later on:

• Walk them through the policy declaration page so they understand what their policy will cover.
• Highlight the “When Builders Risk Coverages Begins and Ends” conditions so they can avoid triggering a premature end to coverage.
• Point out the premium type they have secured (fully earned or pro-rata) and explain the differences.
• Have your construction client sign a copy of the application stating they understand the policy they will receive and keep a copy for your records. 

For more information, contact our Service team at (800) 800 - 3907.

US Assure’s operations are conducted through multiple legal entities, the choice of which depends on whether the business is admitted or non-admitted. Admitted business is conducted by US Assure Insurance Services of Florida, LLC, a Delaware limited liability company based in Florida (“US Assure of Florida”). Non-admitted business is conducted by US Assure E&S (“US Assure Series”), a series of RSG Specialty, LLC, a Delaware limited liability company based in Illinois. US Assure of Florida and US Assure Series are indirect subsidiaries of Ryan Specialty, LLC. US Assure works directly with brokers, agents and insurance carriers, and as such does not solicit insurance from the public. Some products may only be available in certain states or provinces, and some products may only be available from surplus lines insurers. US Assure of Florida in California: InLink Insurance Services (License #0D44490). US Assure Series in California: RSG Specialty Insurance Services, LLC (License #0G97516). 

The description of the Builders Risk Plan insured by Zurich is only a summary of available coverages. The terms, conditions, provisions, limitations, and exclusions of the actual policy as issued will dictate the scope of coverage in the event of a claim.