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.
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.
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:
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.
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.
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.
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.
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.
Before you move forward with a builder’s risk policy, be sure to weigh the benefits and drawbacks.
Below, you’ll find several common questions about builder’s risk coverage and how it might affect you as a homeowner or property owner.
On average, builder’s risk insurance costs 1%–5% of the total budget. Factors like your location, the scope of your project, quality of construction materials, and coverage details will all affect the cost.
The purpose of “course of construction,” or builder risk coverage, is to protect you from risks during a construction or major renovation project. It typically covers losses related to events like theft, vandalism, and fires.
Builder’s risk policies can be costly, as they’re based on the total value of a project, which typically includes the cost of labor, materials, and existing structures. Due to economic and supply chain risks, as well as inflation, this type of coverage has increased over the last decade.
Rates for builder’s risk insurance depend on the project location, whether it’s a new home, renovation, or remodel, construction materials used, and the duration of the project. In general, the more expensive your project is, the higher your premiums will be.
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