Why Do Homeowners Need Builders Risk Insurance?

If you’re starting a construction project, knowing if you need a builder’s risk policy comes down to who owns the land, the scope of the project, and understanding the gaps in a standard homeowners insurance policy.

Builders risk insurance is a specialized type of insurance policy designed to protect your build during a renovation or new construction. If you’re planning a remodel, a custom build, or any new construction, you might be wondering if your contractor should pick up the policy or if you, the property owner, need builders risk insurance as the homeowner.

Below, we explain what this coverage includes, what it leaves out, and when a builders risk policy is necessary.

And if you need help sorting through your options, The Huneycutt Group is your local agent, here to help with exploring builders risk insurance solutions.

What Residential Builders Risk Covers

Building or renovating a home comes with plenty of moving parts, and even more opportunities for something to go wrong. Theft, fire, natural disasters, or damage to construction materials can create serious setbacks at the construction site.

A builders risk insurance policy is built to handle these exposures. A typical builders risk insurance policy includes coverage for:

• The physical structure: Whether it’s a full new construction or a major remodel, the covered property under construction is protected.
• Materials and supplies: Building materials stored on-site, in transit, or in temporary storage are included in the policy covers section.
• Equipment: Tools and equipment used during construction may be covered depending on the policy.
• Common perils: Fire, vandalism, theft, are usually included. Sometimes wind and hail need to be purchased separately. Specific terms vary by insurance company, so review your coverage limits with your agent.

Without builders risk, a single event can cause major costs and derail the entire project. We’ve seen everything from damaged materials during a break-in to stolen copper wiring, real losses that homeowners didn’t expect.

Who Needs Builders Risk Insurance

Many assume only contractors or builders need this coverage, but several parties have a financial interest in a build. Builders risk insurance can apply to:

• Homeowners / property owners: If you own the land or you’re managing the project, you likely need coverage to protect your investment.
• Contractors and builders: A general contractor may carry coverage for their own interests, but that rarely replaces a homeowner’s need for a separate policy.
• Developers: Anyone investing in residential or commercial builds needs financial protection through a builders policy.
• Lenders: Most lenders won’t fund a building project without proof of builders risk coverage.

Who Requires Builders Risk Insurance

While it’s not legally required, builders risk insurance is often mandated by:

• Lenders: Most lenders won’t release funds for a construction project unless builders risk insurance is in place.
• Municipalities: Some local governments require proof of coverage before issuing building permits.
• Property owners: If you’re a contractor working on a project for a property owner, they may require you to carry this insurance.

Why A Homeowner Needs A Builders Risk Policy

Most people are surprised to learn their homeowners insurance won’t cover major renovation work or an unoccupied structure under construction. Until the home is complete and habitable, the standard policy usually excludes property under construction.

A builders risk policy fills that gap. It covers the structure, materials, and equipment while the work is underway. Without it, you’re exposed to losses you’d have to pay out of pocket.

And remember: your contractor’s business insurance may cover their liability, but not your covered property, materials, or construction materials.

How Builders Risk Differs From Traditional Homeowners Insurance

Builders risk and homeowners insurance serve different purposes:

• Builders risk insurance: Covers the structure under construction, temporary structures, and building materials against fire, theft, vandalism, or weather events. It ends when the project is finished.
• Homeowners insurance: Applies once the property is complete and occupied, covering the dwelling, your belongings, and liability.

As the risk changes, the insurance coverage changes too. When the work is done, your agent can help you move back to a standard homeowners policy so you maintain adequate coverage.

What It Doesn’t Cover

While builders risk insurance offers broad protection, it doesn’t cover everything. Common exclusions include:

• Liability for injuries: If someone is injured on your job site, builders risk insurance won’t cover their medical expenses. You or your contractor will need general liability insurance for that.
• Contractor errors: Faulty workmanship, design errors, or contractor negligence are typically excluded.
• Equipment breakdown: Damage to equipment due to mechanical failure or improper use isn’t covered.
• Normal wear and tear: Builders risk insurance doesn’t cover damages resulting from normal wear and tear.
• Flood: your policy may not cover flood. It’s important to discuss this with your agent.

Understanding what isn’t covered can help you determine if additional policies are needed to fully protect your project.

How Long Is The Builders Risk Policy

Most insurers set the policy term to match the expected project timeline. If the construction takes longer, you can request an extension. Contact your agent before the expiration date. If a loss occurs during a lapse, the carrier won’t reinstate the policy.

• 3–6 months: Smaller renovations or additions.
• 6–12 months: Large builds or full new construction.

Builder’s Risk Insurance Cost Estimate

Builder’s risk insurance cost depends on a few different things:

• Project value: Higher-value builds mean higher premiums.
• Location: Exposure to weather risks can raise pricing. Construction sites in areas prone to natural disasters, such as hurricanes or wildfires, may have higher rates.
• Coverage limits: Broader protection increases cost. Your deductible also affects your share of the costs incurred.

In many cases, risk insurance runs between 1% and 5% of the project value. Your agent can also explain how hard costs, soft costs, labor costs, and other additional costs fit into your construction budget.

For larger projects, some carriers include helpful extras. For example, Hartford includes coverage for certain green upgrades or debris removal, depending on the policy.

An underwriting review will look at your construction contract, project cost, exposures, and timeline to ensure the policy fits your build.

Working with an experienced agent can help you find the best policy at a competitive price.

Insurance Your Builder Carries

Many homeowners assume that their contractor’s insurance provides all the necessary coverage. However, this is rarely the case. A builder’s, or contractor’s, insurance policy typically covers their own liability and workers’ compensation, not damage to the property or materials.

Explore Builders Risk Insurance From A Local Agent

Whether you’re building your dream home, developing a rental property, or investing in a commercial project, having the right builders risk insurance is important. It offers you financial protection against unexpected setbacks, helping your project stay on time and on budget. 

At The Huneycutt Group, we live and work in coastal North Carolina and help homeowners, builders, and developers find coverage for their unique needs. 

Ready to get started? Contact us today for expert guidance and a personalized quote.

Commonly Asked Questions About Builders Risk Insurance For Homeowners