Builders Risk Insurance for Homeowners

Builders risk insurance is a type of property coverage that insures building structures and materials against sudden perils while a property is under construction. Depending on the details of the construction agreement, the builder or the property owner could be responsible for buying a policy to cover the property while construction is in progress.

Keep reading to learn more about builders risk insurance such as what it covers and when you may need to obtain it as an add-on to your homeowners insurance policy.

Key Takeaways

A builders risk insurance policy can insure a building that is under construction along with the materials and equipment used to make it against sudden perils like fire, theft and collapse.
Many builders risk policies also cover soft costs, which are expenses indirectly related to the construction project such as loan interest and legal fees.
Builders risk insurance policies commonly exclude coverage for perils like wear and tear, flooding and earthquakes and also typically don’t include any sort of liability coverage.
Depending on the circumstances, a contractor may have to buy builders risk coverage as a commercial policy or a homeowner may have to buy it as a standalone policy or an add-on to their home insurance policy.
Premiums for builders risk insurance may start as low as $375 and will typically range from 1% to 5% of the construction budget.

What Is Builders Risk Insurance?

Builders risk insurance is a coverage type that insures property while it is under construction. It is often available as either a commercial policy for construction companies and contractors or a personal lines policy for individual homeowners. In fact, some insurance companies will allow you to add builders risk coverage as an endorsement to your home insurance policy, although other carriers may instead require you to purchase it as a separate policy.

As a homeowner, you may need builders risk insurance due to the coverage gaps surrounding construction projects that exist in many basic home insurance policies. For example, some homeowners insurance companies do not cover theft that occurs while a home is under construction.^[1]

What Is Course of Construction Insurance?

Course of construction insurance is often used as a synonym for builders risk insurance.^[2] That said, the term can also refer more narrowly to a policy that provides property damage and third-party liability coverage for a contractor working on a construction project as opposed to the property owner.^[3]

Who Needs Builders Risk Insurance?

Various people and businesses can benefit from carrying builders risk insurance, ranging from real estate developers overseeing large-scale commercial construction projects to homeowners simply looking to hire a few contractors for a home renovation project.

Who is responsible for purchasing builders risk insurance will likely depend on the terms of the construction or payment contract. In some cases, the general contractor or developer in charge of the project will procure a policy.^[4]

However, in other cases, the property owner may be tasked with purchasing coverage or otherwise paying for any losses that occur while construction is ongoing. In addition, if you need to take out a loan to finance your construction project, your lender will likely require you to maintain builders risk insurance coverage.^[4]

How Does Builders Risk Insurance Work?

Assuming you purchase builders risk insurance in advance, your coverage should take effect once you are legally responsible for the property covered by the policy, which may take place as soon as materials are delivered to the construction site.^[5]

Meanwhile, there are various situations that can cause your coverage to end such as when you have lived in the completed home for 90 days, leased or rented out the home to someone else or abandoned the construction project. In addition, your coverage may automatically expire after one year — unless you pay an additional premium — or after a permanent commercial or personal property insurance policy starts covering the property.^[5]

What Does Builders Risk Insurance Cover?

Builders risk insurance policies commonly cover damaging perils like the following:^[2][6]

Fire	Vandalism
Lightning	Hurricanes and other acts of God
Hail	Arson
Explosions	Collapse
Theft	Sewer, drain or sump backup

If you opt for an all-risk or open peril policy, then your insurer will cover any source of damage besides those that are named in the policy as exclusions. You may also be able to add coverage for pollution cleanup and debris removal in case these are necessitated by a covered loss.^[2]

open peril vs named peril

It’s worth noting that commercial builders risk insurance is often underwritten on an inland marine insurance form rather than a standard property insurance form because this allows policyholders to more freely customize their coverage to suit the needs of their construction projects.^[2] As a result, there may be some leeway when it comes to the types of losses that your builders risk insurance company will agree to cover.

What Isn’t Covered?

Basic builders risk policies usually exclude coverage for floods and earthquakes and may also exclude coverage for windstorms if you are building in a region that is prone to substantial wind damage like a beach. However, you may be able to purchase extra coverage to account for these risks.^[2]

Other perils that likely won’t be covered include the following:^[2]

Wear and tear
Acts of war or terrorism
Employee theft
Rust and corrosion
Mechanical breakdowns
Faulty design or poor workmanship

Additionally, builders risk insurance typically doesn’t cover workplace accidents or liability costs such as medical bills, property repairs and legal expenses in situations where you are held responsible for injuring someone else or damaging their property.^[6] These situations may be covered by the personal liability insurance portion of your homeowners insurance policy or — for business owners — workers’ compensation, general liability or premises liability insurance.

Types of Property That Builders Risk Insurance Covers

Along with covering buildings and other structures while they are under construction, a builders risk insurance policy can cover construction materials, supplies and equipment, even if the equipment is in transit or otherwise offsite. You can also typically add coverage for various other types of onsite property such as documents or scaffolding and other temporary structures.^[2]

Usually, builders risk insurance coverage is available for three different types of construction projects: new construction, remodeling and installation.^[6]

If you are purchasing coverage for a remodeling project, you may be able to get a policy that applies not only to the new structure but also to the existing structure of your home in case it is damaged amid construction.^[6]

Covered People

There are several different people involved in any given construction project who may have a financial interest in the project and who can be added to a builders risk policy as insureds including property owners, general contractors, subcontractors, lenders and architects.^[2]

Covered Costs

In addition to covering property repairs or replacements, many builders risk policies cover soft costs, which are expenses that are indirectly related to the construction project or that may arise as a result of property getting damaged or some other delay in the construction process. Below are a few examples of soft costs that your builders risk insurance company may cover:^[2][3]

Lost income
Extra interest on outstanding loans
Real estate taxes
Architectural and engineering fees
Permits
Legal expenses

How Much Does Builders Risk Insurance Cost?

Builders risk insurance often costs between 1% and 5% of the construction project’s total budget.^[7] For example, if you expect to pay $50,000 to add a new room to your house, then you may have to spend between $500 and $2,500 on builders risk coverage.

Premiums for builders risk insurance from Zurich start as low as $375 per project but your exact costs will depend on factors like the type of construction project, your location, the quality of the construction materials, whether your policy includes extra coverage for perils like floods or earthquakes and whether your carrier is part of the admitted insurance market.^[8]

What Is the Difference Between Builders Risk and Property Insurance?

While builders risk insurance covers structures and other items used in the construction or renovation of a building, property insurance covers your property once construction has been completed. A standard homeowners insurance policy includes four types of property coverage:

Dwelling coverage for the structure of your home
Other structures coverage for structures on your property that aren’t directly connected to your house
Personal property coverage for your belongings
Loss of use coverage for additional living expenses that arise when your home is damaged to the point of being uninhabitable

Meanwhile, after a commercial construction project has been completed, the structure of the commercial building and all business-owned contents stored inside of it should be covered by a standard commercial property insurance policy.

How To Get Builders Risk Insurance for Your Next Home Project

To get the best deal on the coverage you need, it’s recommended that you compare builders risk insurance quotes from around three to five different insurance companies. The problem is that it can be very time-consuming to individually reach out to multiple insurers to give them your information and request quotes.

For this reason, you should shop around through SmartFinancial. Simply fill out a brief questionnaire and then we’ll help you find the right policy for your construction project. Compare quotes for home insurance policies that include builders risk coverage by clicking here.

Get a Free Quote for Cheaper Homeowners Insurance!

FAQs

Is builders risk different from property insurance?

Builders risk insurance covers construction materials and structures, while personal property insurance covers items like clothes, furniture and electronics after the policyholder’s home has been built.

Does homeowners insurance cover builders risk?

Homeowners insurance policies may exclude coverage for theft that occurs while a home is under construction, though some policies will cover damage to the structure of the home while it is under construction.^[1]

What is the difference between builders risk and all-risk insurance?

Builders risk insurance refers specifically to a type of policy that covers theft of and damage to property under construction, while all-risk insurance can refer to any type of property insurance that covers all perils except for those that are specifically excluded by the policy.

Is builders risk different from general liability?

Builders risk insurance covers property during a construction project, while general liability coverage broadly insures businesses against bodily injury, property damage and personal or advertising injury claims that they are held liable for.

Does umbrella insurance cover buildings under construction?

Umbrella insurance may provide extra liability coverage in case a contractor is injured or their belongings are damaged amid a construction project at your home but it does not provide any coverage for your own property.

Sources

Oklahoma Insurance Department. “State Farm Homeowners Policy,” Pages 5 and 15. Accessed Aug. 28, 2024.
The Hartford. “What Is Builder’s Risk Insurance?” Accessed Aug. 28, 2024.
Barbee Jackson Insurance. “Builders Risk vs. Course of Construction: What’s the Difference?” Accessed Aug. 28, 2024.
Builders. “Builders Risk Insurance.” Accessed Aug. 28, 2024.
US Assure. “When Builders Risk Coverage Begins and Ends.” Accessed Aug. 28, 2024.
US Assure. “What Is Builders Risk Insurance.” Accessed Aug. 28, 2024.
Embroker. “How Much Does Builders Risk Insurance Cost?” Accessed Aug. 28, 2024.
US Assure. “Builders Risk Insurance Cost.” Accessed Aug. 28, 2024.

What Is Builders Risk Insurance and When Do I Need It?

Dylan Tate

Dan Marticio

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