Why Do Homeowners Need Builders Risk Insurance?

The question is: “Why, as a homeowner, do I need builders risk insurance?”

Builders Risk is a specialized type of insurance policy designed to protect your financial investment during the construction process. But how do you know if you need it? Maybe you’re wondering if your builder or contractor should be buying this coverage for themselves? 

In our guide, we’re explaining what builders risk insurance is, what it covers, what it doesn’t cover, and who needs it.

And remember, The Huneycutt Group is here to help with expert advice and customized insurance solutions.

What Residential Builders Risk Covers

Building or renovating a home is exciting but comes with its fair share of risks. From unexpected weather delays to theft or damage of materials, countless issues can arise during construction. 

Builders Risk insurance is tailored to protect construction projects against various risks. The policy covers:

• The physical structure: Whether it’s a new build or a significant remodel, the main structure under construction is protected.
• Materials and supplies: Building materials stored on-site, in transit, or temporarily off-site are included in the coverage.
• Equipment: Tools and equipment used in the construction process can also be covered, depending on the policy.
• Common perils: Most policies cover risks like fire, theft, vandalism, wind, and hail damage. However, coverage may vary depending on where you live, so it’s important to review the specific terms of your policy.

Without builders risk insurance, any of these unexpected events could result in significant financial losses. Protecting your investment with the right coverage makes sure your project can continue without major setbacks.

Losses happen. As an insurance agency, we’ve helped our insureds file claims for damages to materials during a break-in to the theft of copper wiring. Yes, this actually happens.

Who Needs Builders Risk Insurance

Many people assume that only builders or contractors need this type of policy, but that’s not entirely accurate. Builders risk insurance can benefit various parties involved in a construction project, including:

• Homeowners: If you are the land owner or you’re managing a renovation or custom home build, you may need this coverage to protect your financial interest. 
• Contractors and builders: Professionals responsible for completing the project, or if they own the land, often purchase this insurance to mitigate their risks.
• Property developers: Investors and developers working on residential or commercial projects need builders risk insurance to protect their investments.
• Lenders: Financial institutions funding a project may require proof of builders risk insurance before releasing funds.

Whether you’re a homeowner or a contractor, having the right policy can mean the difference between a minor inconvenience and a major financial disaster.

Why A Homeowner Needs A Builders Risk Policy

It’s a common misconception that homeowners insurance covers construction or major renovation projects. In reality, most standard homeowners policies won’t cover a property until construction is complete and it’s deemed habitable. This leaves a significant gap in coverage during the building process.

A builders risk policy is designed to fill this gap. It ensures that your home, materials, and equipment are protected from unexpected losses. Without it, you could be left paying out of pocket for damages or delays.

If you’re hiring a contractor to manage the project, don’t assume their insurance covers your interests. Their policy typically only covers their liability—not the property or the material.

How Builders Risk Differs From Traditional Homeowners Insurance

Builders risk insurance and homeowners insurance serve different purposes:

• Builders risk insurance: Covers the property under construction, including materials and equipment, for risks like fire, theft, and weather damage. It’s a temporary policy that ends once the project is completed.
• Homeowners insurance: Provides long-term coverage for an existing home, including the structure, personal belongings, and liability.

Think of it this way, when the risk changes, so does the policy. Once your construction project is finished, you’ll need to transition to a standard homeowners policy. It’s important to coordinate with your insurance agent to ensure continuous 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

Builders risk policies are usually issued for a term that matches the length of your project. Common policy terms are:

• 3 to 6 months: For smaller renovation projects or home additions.
• 6 to 12 months: For larger new construction projects.

If your project faces delays, many insurers offer policy extensions. It’s crucial to contact your insurance provider before the policy expires to arrange for an extension. Failing to extend the policy could leave your project uninsured during critical phases. You will not be able to reinstate your policy if there’s been a loss during the lapse in coverage.

Builder’s Risk Insurance Cost Estimate

The cost of builders risk insurance varies depending on several factors:

• Project value: Higher-value projects typically have higher premiums.
• Location: Construction sites in areas prone to natural disasters, such as hurricanes or wildfires, may have higher rates.
• Coverage limits: The more comprehensive the coverage, the higher the premium. Talk to your agent about your deductible options to possibly lower your premium. But keep in mind, you’ll be financially responsible for this portion.

On average, builders risk insurance costs between 1% to 5% of the total project value. Working with an experienced agent can help you find the best policy at a competitive price.

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.

Having builders risk insurance not only meets these requirements but also provides peace of mind that your project is protected.

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.

Secure Builders Risk Insurance From An Expert

Whether you’re building your dream home, developing a rental property, or investing in a commercial project, having the right builders risk insurance is critical. It provides financial protection against unexpected setbacks, ensuring that your project stays on track. 

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

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

FAQs For Builders Risk Insurance For Homeowners