Builder’s risk insurance for homeowners: What to know

When a home is being built from the ground up or is undergoing heavy structural changes, it’s vulnerable to damage, theft, and harsh weather. Whether you’re having renovations done or building a new home entirely, home construction projects can create risks that may not be covered by standard homeowners insurance policies.

Builder’s risk insurance for homeowners bridges this coverage gap and helps protect you when those surprises happen. This insurance may be optional, but in some cases it’s required by a lender, contractor, or local officials. Let’s take a closer look at how this insurance works, what it covers, and how to set yourself up for a smooth, protected build.

Key takeaways:

• Builder’s risk insurance covers property damage, theft, and vandalism for homes while they are being built or heavily renovated.
• This specialized coverage fills the gap left by standard homeowners insurance, which typically excludes properties under active construction.
• Policies are temporary, usually lasting for 3, 6, or 12 months, and end as soon as the house is ready to be occupied.

What is builder’s risk insurance?

Builder’s risk insurance is a type of property insurance that offers property and liability coverage for buildings and structures while they are under construction or undergoing major renovations. If a storm damages the site, someone steals equipment, or vandalism slows progress, this coverage can help absorb the financial impact.

This type of coverage also goes by several other names, including home builder’s insurance, contractor’s all-risk insurance, or course-of-construction insurance (COC). Regardless of the name, the purpose is to protect the financial investments of the homeowner, the contractor, and the lender while the property is in a vulnerable, unfinished state.

Policies are available for residential, commercial, and mixed-use projects, and the terms vary widely by insurer and project size. If you're preparing for a renovation or an addition, you should explore our guides on renovation and remodeling, or buying a new construction home.

Builder’s risk insurance vs. homeowners insurance

A common and costly mistake is assuming your existing homeowners insurance will cover all issues during a renovation. Standard homeowners policies are designed to protect completed, occupied homes, which can lead to a variety or coverage gaps or insufficient limits during a renovation.

If your new foundation collapses or your partially built framing is destroyed by high winds, a standard home insurance policy will likely deny the claim. Builder’s risk insurance specifically targets the unique hazards of an active construction site. Another potential benefit is that filing a claim on a builder’s risk policy instead of your permanent homeowners policy can help you avoid potential premium hikes or unexpected policy cancellations on your permanent coverage.

Types of builder’s risk insurance

Builder’s risk insurance generally falls into three main categories for homeowners:

• New construction: This covers projects where a home is being built entirely from the ground up on a vacant lot.
• Renovation and remodeling: This covers existing structures that are undergoing significant alterations, such as large additions, structural repairs, or whole-home gutting.
• Installation: This cover smaller projects involving the installation of a single fixture or feature.

What does builder’s risk insurance cover?

Every construction project carries uncertainty, and builder’s risk insurance is designed to soften the impact when something unexpected happens. Exact coverage varies by insurer but is generally broken down into a few distinct categories.

Hard costs and physical damage

This is the core of your policy. Builder’s risk covers the physical structure itself – including the foundation, framing, and roofing – against damage from unexpected events like:

• Fire
• Lightning
• Wind
• Hail
• Theft
• Vandalism
• Explosion
• Smoke
• Car collision
• Falling objects
• Riot

For example, if a fire destroys your half-built kitchen, this coverage pays to replace the damaged structure. Labor materials, equipment, vehicles, and landscaping are all covered.

Soft costs and delay-related expenses

Construction delays are frustrating, but they can also be incredibly expensive. If a covered hazard forces your project timeline to extend by several months, soft costs coverage can reimburse you for the resulting financial fallout. Soft costs include:

• Loan interest
• Insurance
• Inspections
• Land costs
• Architect fees
• Accounting expenses

Materials in transit, off-site storage and temporary structures

Builder’s risk insurance protects the expensive construction materials, fixtures, and tools. This coverage protects these materials not just while they are on the actual job site, but often while they are temporarily stored off-site or actively in transit to your property. This coverage also frequently covers temporary structures necessary for the build, such as construction fencing, scaffolding, or temporary on-site offices.

Coverage add-ons

Every construction project carries its own risks, and sometimes a standard builder’s risk insurance policy doesn’t provide enough protection. Coverage add-ons, also called endorsements, can expand your policy to better protect you against unexpected events that might disrupt progress or increase costs.

• Flood or earthquake coverage
• Extended storm protection
• Coverage for construction forms and temporary structures
• Expedited expense reimbursement
• Extra debris removal
• Costs to repair or replace tools, machinery, or other construction equipment
• Pollutant cleanup
• Sewer or drain backup
• Coverage for damaged or lost project documents
• Ordinance or law upgrades
• Testing of building systems

What does builder’s risk insurance not cover?

Knowing what builder’s risk insurance does not cover is just as important as knowing what it does. Builder’s risk is strictly property insurance. Standard policies typically exclude:

• Liability protection: It does not cover injuries to bystanders who wander onto your property.
• Workers' compensation: It does not pay for medical bills if a construction worker is injured on the job.
• Poor workmanship or design flaws: It will not pay to fix mistakes made by your architect or contractor.
• Severe weather events: Standard policies exclude damage from floods, earthquakes, or beach erosion.

Coverage you may need outside builder’s risk insurance

To make sure you are fully protected, you can bridge builder’s risk insurance exclusion gaps with additional coverage. Your general contractor should carry their own liability and workers' compensation insurance. If you live in a high-risk area, you will need to purchase separate, dedicated earthquake insurance or flood insurance policies to protect the physical structure from those specific natural disasters.

Who needs a builder’s risk insurance policy?

Anyone with a financial stake in the construction project may need coverage, including:

• Property owners
• Home buyers building new construction
• Real estate investors
• General contractors
• Subcontractors
• Lenders
• Architects or engineers
• Some municipalities won’t issue permits without proof of coverage.

Most often, the property owner, buyer, or general contractor purchases the policy based on the terms of the real estate purchase agreement. Other key players may be added as insured parties.

Can you rely on your contractor’s insurance?

You might be wondering – If the contractor has insurance, do I still need a policy? While your general contractor should carry general liability and workers' compensation insurance, those policies only cover their business liabilities and their employees. They do not cover your actual physical property if a storm blows the roof off before it is finished. You need builder’s risk insurance to ensure the structure and materials you are paying for are financially protected.

Who pays for builder’s risk insurance?

Determining who’s responsible for builder’s risk insurance usually comes down to the specific terms negotiated in your construction contract. The homeowner or general contractor may buy the policy depending on the agreement. However, if the contractor is going to buy the coverage, they’ll work that into their budget for the project, so the cost will still fall on the homeowner.

Who should be named on the policy?

The homeowner should be listed as the primary insured party because they own the property and bear the most financial risk. The general contractor should also be listed as an additional insured. If you are financing the project, your lender will require you to include a mortgagee clause naming them on the policy so that their financial investment is protected.

When should homeowners buy builder’s risk insurance?

You should purchase and activate your policy before any physical construction begins and before any expensive building materials are delivered to the job site. Lenders and local building authorities will often require proof of this coverage before signing off on loans or issuing building permits.

How long does builder’s risk insurance last?

Builder’s risk policies are specifically designed to be temporary. Most providers offer policies in terms of 3, 6, or 12 months, depending on your anticipated construction timeline.

How much does builder’s risk insurance cost?

Builder’s risk insurance typically ranges between 1% and 5% of the total construction budget. The total cost will depend on the property type, location, the scope of the construction project, and the materials involved.

How to get home builder’s insurance coverage

When renovating your home or undertaking a real estate investment project, taking it step by step helps you choose coverage that protects your build from insured hazards and unexpected setbacks.

• Determine the project scope: Outline what you’re building or renovating, since a small addition and a ground-up build carry different risks. A clear scope helps insurers match your property damage protection to the work ahead. If you’re still budgeting, review what goes into the cost to build a house.
• Review your coverage needs: Consider what could reasonably go wrong – damage, theft, delays, or materials lost in transit. Builder’s risk insurance for homeowners may cover hard costs like labor and materials and soft costs like permits, loan interest, lost rental income.
• Research insurance providers: Policies vary widely. Compare insurers based on experience with your project type, what their standard coverage includes, and which protections require add-ons.
• Obtain home builder’s insurance quotes: Request quotes from several insurers to compare costs, deductibles, and coverage. If you’re unsure how to evaluate offers, our guide to questions to ask a mortgage lender can help you think through the right questions for insurance providers, too.
• Review the policy’s terms: Read the fine print carefully. Pay attention to covered and excluded hazards, limits, timelines, and whether temporary structures or off-site materials are included. Confirm that all required parties are named on the policy.
• Purchase your coverage: Choose the policy that best fits your project, timeline, and budget, then share proof of insurance with your contractor or lender. Many builder’s won’t begin work until coverage is in place, so securing a policy early helps keep your project on track.

How to compare builder’s risk insurance companies

When reviewing multiple quotes, never simply look at the final price tag. Carefully compare the following details:

• The exact coverage limits for the main structure.
• The deductibles you will be responsible for out of pocket in the event of a claim.
• Which specific hazards are excluded.
• What add-ons (like materials in transit or soft costs) are included in the base price versus charged as extras.

FAQ

Here are the answers to some frequently asked questions about builder’s risk insurance.

Can a homeowner get builder’s risk insurance?

Yes. A homeowner is typically the one who purchases the builder’s risk policy, as they have the ultimate financial stake in the property and the land it sits on.

Is builder’s risk insurance worth it?

Without builder’s risk insurance, you could be leaving a large investment vulnerable to fire, theft, and severe weather. Standard homeowners insurance does not cover active construction sites, so builder’s risk insurance can be very important if an issue occurs.

Does my contractor’s insurance cover my project?

Your contractor’s general liability and workers' compensation insurance only protect their business against lawsuits and employee injuries. Their insurance does not pay to rebuild your home's framing if it is destroyed by a storm. You need a dedicated builder’s risk policy to protect the physical property.

The bottom line: Builder’s risk insurance is a valuable safety net

Whether you’re building a new home or an addition onto your current one, you’ll want to insure the construction process. All the different vulnerabilities that come with an active job site won’t be covered by your standard homeowners policy. Builder’s risk insurance serves as a safety net that fills the coverage gaps and ensuring that fires, theft, and severe weather don’t destroy your investment. By understanding the costs, naming the right parties on the policy, and securing coverage before starting construction, you can navigate the construction process while mitigating risk.

Rocket Mortgage doesn’t offer construction loans at this time. However, we do provide other loan options – like a Home Equity Loan¹ – that could help you finance a home renovation or project. Speak with one of our Home Loan Experts and start your application today.