Do I Need Builders Risk Coverage for my Home Project?

If you’re overseeing a construction, renovation, or installation project in your home, we understand how important your project is to you -- I mean, it is the place you eat, sleep, relax and spend time with your families, after all. 

Of course, you are hoping the process goes smoothly, but what if it doesn’t? Could you afford to pay for the damages or losses if something were to happen to your project before it was completed?

That’s where we come in. Berry Insurance has helped hundreds of families protect their homes in the construction or renovation stages through builders risk insurance.

Builder’s risk insurance is a pivotal part of your construction, renovation, or installation project because it provides individualized protection for the structure and related materials leading up to project completion. 

We know your home construction venture has many moving parts and can be stressful to manage. One thing that doesn’t have to be stressful is your builder's risk insurance.

While we can’t help you with the construction of the project itself, Berry is here to help you navigate the construction of your builder's risk policy by explaining the coverages, exclusions, process and cost.

What is builder's risk insurance?

Builder's risk insurance is an individualized type of property insurance, formulated specially for buildings under construction.

Also known as “course of construction" insurance, builder's risk insurance protects the property and homeowner from financial loss resulting from damage or loss of the project’s structure and materials during the course of construction. 

Because each policy is so specialized, understanding what you can expect from your builder's risk insurance can be confusing. 

Builder's risk policies are available in a few different types, for residential and commercial projects. In this article, we will be talking about “location specific policies.” These policies cover a single residential or commercial new construction, remodel or installation project and are the type you will be using on your home project.

What does it cover (and not cover)?

Generally, a builder's risk policy covers a structure under construction and the materials being used to build it (anything that will become a permanent part of the structure), either on site or in transit. 

Because builder's risk insurance policies are specifically curated for each individual construction project, their terms can vary greatly.

However, most policies cover damages or losses of property from theft, vandalism, fire, lightning, hail, hurricanes, wind, explosions, and vehicles.

Exclusions and extensions:

Most policies carry standard exclusions. Damages or losses resulting from ordinary wear and tear, mechanical breakdown, faulty design, employee theft, earthquakes, water damage, weather damage of property left in the open, acts of terrorism and war, government action, contract penalty, and voluntary parting are all not typically covered.

Depending on location and other project variables, other exclusions may apply. For example, if the project is in a beach zone, damages or losses from earthquakes, floods, and wind may not be covered, but extensions can typically be purchased to cover these situations.

In addition to the structure and it’s materials, policyholders can purchase extensions to cover temporary structures, construction forms and scaffolding used in the construction process, as well as debris removal in the event of a loss.

Builder's risk insurance also offers other optional extensions which would reduce the financial impact of damage or loss. For example, you could purchase an extension to cover costs due to a delay in project construction resulting from a loss, such as lost sales or rental income, loan interest, and real estate taxes. 

Some of these exclusions are sometimes included within a standard policy, without the extra cost.

Builder's risk insurance does not cover accident and injury liability during construction -- liability insurance will be needed in addition to builder's risk.

Builder's risk also does not cover subcontractors (they are required to have their own insurance) or the property of others.

How does it work?

After damage or a loss, builder's risk insurance covers up to the coverage limit. The coverage limit, which is established during the insurance purchasing project, typically aligns with the construction budget including all materials and labor (and not including land value.) 

Term lengths generally run three, six, or 12 months depending on the length of construction. If the construction exceeds the policy term, it can be extended (usually only once.)

Do I need builder's risk coverage?

Homeowners should always have builder's risk insurance for any construction or major renovation.

If the project is being financed, the lender will typically require proof of a builder's risk policy.

Small jobs where the homeowner is still living in the home during the work are typically covered by a home insurance policy rather than builders risk. For projects including renovations and small additions, check with your home insurance agent first to see if there is coverage under your homeowners insurance policy and if not, a builder risk is usually the answer.

How much does builder’s risk insurance cost?

A standard builder’s risk insurance policy will cost 1-4% of the total construction cost. 

For example, coverage for a $400,000 dollar project could cost around $4,000 to $16,000. 

Of course the cost will vary depending on the type of policy and any extensions included.

When obtaining a quote, your insurance agent will ask you for various details such as:

• Site address
• Type of project
• Project budget
• Number of stories
• Square footage
• Public protection class
• Security details
• Actual cash value of existing structure (if renovation)
• Year built (if renovation)
• Projected structural alterations (if renovation)

Need a policy?

Because insurance companies tailor builder's risk policies to each specific project, they can vary greatly. You’ll want to work closely with your agent to make sure your coverage is adequately protecting your project. 

At Berry Insurance, we’ve worked with several property owners, ensuring each acquired a policy with the proper coverages for their unique needs on projects including first homes, summer beach houses, grandparent en-suites and more.

Once the project is completed and the builders risk policy expires, we can also help you obtain the homeowners policy you need to protect your new home.

Before committing to a builder's insurance policy, here are some other things to consider.