What Is Builders Risk Insurance for Homeowners?

Builder’s risk insurance provides temporary property protection for homeowners undertaking significant construction or renovation projects. It safeguards the structure and materials during the building process. This insurance covers unique risks associated with a property actively under construction, such as a new home build, a major addition, or extensive structural renovations.

Understanding Policy Coverage and Limitations

A builder’s risk policy for homeowners typically covers various perils that could damage the construction project. Common covered events include fire, lightning, wind, theft of building materials, vandalism, and structural collapse. This protection extends to the physical structure under construction, building materials stored on-site, and sometimes materials in transit or temporary structures like scaffolding.

Policies can also offer coverage for “soft costs,” which are indirect expenses that may arise from a covered loss, such as architectural fees, interest on construction loans, or additional real estate taxes due to project delays. These policies often contain specific limitations and exclusions. Standard exclusions typically involve faulty design, poor workmanship, or defective materials, as these issues generally fall under a contractor’s liability or design professional’s responsibility.

Other common exclusions include normal wear and tear, rust, mold, and mechanical breakdowns. Acts of war or terrorism are also generally not covered. Natural disasters like floods or earthquakes are often excluded unless specifically added to the policy through an endorsement.

Builders Risk Compared to Homeowner’s Insurance

Standard homeowner’s insurance differs significantly from builder’s risk coverage. A homeowner’s policy is designed to protect a completed and occupied dwelling, its contents, and the homeowner’s liability for accidents on the property. This type of policy typically provides limited or no coverage for properties undergoing extensive construction or renovation.

Builder’s risk insurance, by contrast, is a temporary, project-specific policy. Its primary focus is on safeguarding the evolving structure and the materials used during the construction phase, such as lumber, plumbing, and electrical systems. Homeowner’s insurance, conversely, covers the existing finished dwelling and personal property within it, along with liability for occupants.

The transition between these two policy types typically occurs upon project completion. Once the construction is finished, the dwelling receives a certificate of occupancy, or the homeowner moves in, the builder’s risk policy concludes. At this point, the standard homeowner’s insurance policy then becomes the primary coverage for the property, protecting the now-completed and occupied home.

Practical Considerations for Homeowners

Homeowners typically need builder’s risk insurance when undertaking significant construction projects. This includes building a new home from the ground up, adding a substantial extension to an existing dwelling, or performing major structural renovations that alter the home’s footprint or significantly increase its value. Securing this coverage before construction commences is important, especially since many lenders or local municipalities may require it for building permits or financing.

Builder’s risk policies are generally issued for the estimated duration of the construction project, commonly for periods such as 6, 12, or 18 months. If the project encounters delays, options for extending the policy are usually available, though they may require underwriting review and approval. The insured value of the policy for a homeowner’s project is typically determined by the total estimated completed value of the structure, encompassing both material and labor costs, but generally excluding the value of the land.

Several factors influence the cost of a builder’s risk policy. These include the total project value, the type of construction (e.g., wood frame versus masonry), the project’s location, and the estimated duration. Location-specific risks, such as proximity to fire stations or susceptibility to natural disasters like hurricanes or tornadoes, can also impact premiums. Costs vary, but typically range from 1% to 5% of the total construction budget, or approximately $100 to $300 per month for smaller residential projects, with annual costs ranging from $1,000 to $5,000. Deductibles can range from $500 to $5,000, depending on policy specifics.