What Is Builder’s Risk Insurance for Homeowners?

A new house or major home renovation is exciting. But such a project can also pose a variety of risks. That’s where builder’s risk insurance comes in.

Since a standard home insurance policy won’t protect you against losses that may arise during the renovation or construction process, builder’s risk insurance can be a helpful solution. This coverage can also protect your property and construction materials from damage caused by unforeseen events.

Here’s a closer look at builder’s risk insurance and how it works.

What builder’s risk insurance covers

Also known as homebuilder’s insurance, builder’s risk insurance is designed to cover the losses you may incur during the construction or renovation of property.

Builder’s risk insurance is available for both residential and commercial properties and usually protects against the following:

• Theft: Construction and renovation sites are often susceptible to theft, especially when they’re unguarded. A builder’s risk policy can reimburse you for stolen materials and equipment.^[1]

• Vandalism: Vandalism may prolong your project and increase its costs. Fortunately, builder’s risk insurance can protect against it.

• Fire: A fire can occur when you least expect it and halt your construction or renovation. Most builder’s risk policies cover fires.

• Natural disasters: Floods, earthquakes, and other natural disasters can wreak havoc on your project. A builder’s risk policy can cover them, although you may have to pay an additional fee.^[2]

• Equipment breakdown: If a bulldozer, crane, or another important piece of machinery malfunctions, builder’s risk insurance can help you repair or replace it.

• Documents: In most cases, construction and renovation projects involve valuable documents, such as designs, blueprints, and estimates from contractors. If they sustain damage or get lost, builder’s risk coverage may apply.

• Soft costs: Soft costs are other expenses you may incur as you build a new home or remodel your current one. While they may not be tied to labor or building materials, you can directly associate them with a covered loss. A few examples that a builder’s risk policy might cover include construction loan interest, real estate and property assessment, legal and permitting fees, and insurance premiums.

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Additional coverage options 

If a builder’s risk policy doesn’t cover everything you need it to, you can invest in add-ons or coverage extensions. Here are a few options you might want to consider:

• 

  Flood insurance

  Flood insurance might make sense if your project is located in an area with a high flooding risk. You can buy flood insurance from the National Flood Insurance Program (NFIP) or a private insurer.

• 

  Inland marine insurance

  This type of policy protects against property like tools and equipment while in transit. Inland marine insurance may be beneficial, regardless of whether the contractor owns or leases the equipment.

• 

  Sewer backup insurance

  With a sewer backup policy, you’ll receive coverage for damage that stems from standing sewage in your toilet, bathtub, or anywhere else on your property. Older sewer systems, tree roots, and sump-pump failures are all common causes for sewer backups.

• 

  Pollutant cleanup

  Pollutants may pop up and disrupt a construction or renovation project. Often called environmental insurance, pollutant cleanup coverage can help cover the costs of removing, restoring, or replacing pollutants.

What builder’s risk insurance doesn’t cover

As with any type of insurance coverage, builder’s risk insurance usually has exclusions. Most policies exclude the following:

• Wear and tear: Wear and tear refers to damage that naturally arises as tools, equipment, or machinery age and get used. Builder’s risk insurance doesn’t cover it.

• Acts of war and terrorism: Just like most insurance policies, builder’s risk won’t protect against damage that results from a war. If a war breaks out during your project, your insurer won’t pay for damages you might incur, even if they’re catastrophic.

• Damage due to faulty design: Builder’s risk insurance won’t help if you need to replace or repair material or structures due to improper design or poor workmanship.

Who needs a builder’s risk insurance policy?

Builder’s risk insurance can be worthwhile for anyone who has a financial stake in a property renovation or new construction project, such as property owners, real estate investors, homebuilders, development companies, engineers or architects, and contractors or subcontractors.

This type of insurance coverage is likely a good idea if you plan to build a new home or complete a major renovation, such as a home addition.

In some cases, your general contractor will buy a builder’s risk policy, but sometimes you’ll be liable for it as the project owner.

Where to get builder’s risk insurance 

Some insurance companies, such as Chubb and Liberty Mutual, offer builder’s risk coverage.^[3] If you already have a policy with an insurance company, ask if it offers builder’s risk insurance. You might be able to bundle a builder’s risk policy with your current car insurance or home insurance, for example. 

Be sure to shop around and compare your options so you can zero in on the ideal coverage and premium for your new build or renovation.

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Cost of builder’s risk insurance

The cost of builder’s insurance can vary dramatically, but it typically costs about $105 per month. The cost of your particular policy will depend on a number of factors, such as the type of project, construction materials, land value, coverage amounts and limits, location and timeline of the project, and the logistics. 

A good rule of thumb for the cost of a builder’s risk policy is 1%–5% of your total construction budget.

Builder’s risk insurance vs. homeowners insurance

Home insurance is designed for completed properties. Builder’s risk insurance, on the other hand, is for properties in the construction or renovation phase. A home being built from the ground up is prone to different risks than a home that’s completely enclosed and occupied. Therefore, a specialized type of property insurance is often necessary.

The table below outlines how builder’s risk insurance and homeowners insurance compare.

Builder’s risk insurance pros and cons

Before you move forward with a builder’s risk policy, be sure to weigh the benefits and drawbacks.

Builder’s risk insurance FAQs