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New home construction sites are vulnerable to theft, vandalism and weather-related losses – make sure you’re properly protected with a builders risk insurance policy.

insurance for new home construction

When you build a new home, it is important to pay attention to the details. While you are choosing the knobs for your cabinets and the countertops, make sure that you also get an insurance policy for your house.

If you're having a house built from a builder, you should be certain that they have the right insurance. If they don't, then you should get it for yourself. Make sure you've got the right home insurance during construction or renovation.

  • Builder's risk insurance is a policy that protects a home under construction against theft or vandalism. It also covers tools and materials used to build the home.
  • Builders risk insurance generally lasts for nine to 12 months. But it can be renewed if the construction delays for some reason.
  • Don't forget to ask your contractor about the insurance policy they carry and what their limits are.
  • The cost of Builders risk insurance can be between 1% and 4% of the budget, depending on multiple factors like the rebuilding cost of your completed home, size, and the materials to be used.

What is builders risk insurance?

Builders risk is a type of home construction insurance that offers some financial protection during construction projects. A construction project could be anything from a new home build to a home renovation. Builders risk insurance is often required by construction lenders and is sometimes called construction loan insurance, home building insurance or renovation insurance.

How does builders insurance work?

Builders risk insurance provides extensive coverage for property damage and loss. It is designed to provide protection to construction sites against theft, vandalism, and natural disaster. Your policy may also cover you from damage to your construction materials, temporary structures like fencing, subdivision signs, scaffolding and landscaping.

What does builders risk insurance cover?

Builder's risk coverage is specifically designed to cover homes while they are under construction whether new construction or a renovation project. It typically covers equipment on site, materials and supplies.

Covered perils will vary, but most builders risk policies cover damages or loss resulting from the following:

  • Explosion or fire
  • Hail
  • Lightning
  • Theft
  • Vandalism
  • Vehicle or aircraft collision

For example, if your contractor drops off a load of expensive lumber and an opportunistic thief steals it, your builders risk policy should cover you for that loss once your deductible is paid.

What is not covered by builders risk insurance?

"This insurance doesn't provide liability coverage or any protection for the home's contents since there typically won't be any personal possessions at the construction site," says Benjamin Saine, product manager for homeowners insurance with USAA insurance in San Antonio, TX.

Your contractor still needs to have their own general liability insurance policy to cover things like bodily injury and property damage where they are deemed at fault.

Additionally, many builders risk policies list exclusions for things like earthquake, flood, acts of terrorism and war, employee theft, mechanical breakdowns, workmanship, fault design and wear and tear.

Who needs builders risk coverage?

If a person has any financial interest in the construction project, they will require builders risk insurance. The following is a list of some of the people you may want to add to your insurance policy:

  • Owner of property
  • Lenders
  • Architects
  • General contractor
  • Subcontractors

Cost of builders risk insurance for a homeowner

What is the average cost of builders risk insurance? The cost of this type of insurance can be anywhere from 1% to 4% of what is budgeted for construction depending on multiple factors. Typically, the amount of insurance you need to purchase depends on the estimated rebuilding cost of your completed home, based on the size, the finishes and the materials to be used, says Saine.

Saine says most insurance companies will steeply discount the premiums because the home hasn't been completed. Once your home is complete, with flooring and appliances in place, you need to contact your insurance company to convert your insurance to a standard home insurance policy.

How long does home building insurance coverage last?

Policies are generally written for nine to 12 months. Most can be renewed if there are construction delays, says Saine, but the insurance company will usually assess the project to make sure progress is being made on the home.

Who pays for builders risk insurance?

Typically, this is a decision to be made between the homeowner and contractor. It is a fair assumption that if the contractor pays for the insurance policy, the cost will get passed on to the homeowner in some way. However, this is something you should mutually agree upon with your contractor.

Ashlee Tilford, an managing editor in the process of building a home shared, "Our contractor included the cost of builders risk insurance into our construction bid. He secured the policy but we paid for it. But we shopped around first to make sure we were getting the best coverage for the best price."

If construction loan insurance is required by your lender, they may require you, the homeowner, to pay for the policy. However, this varies by lender.

Where can I buy a builders risk policy?

Many major insurance companies sell home building insurance. Here are a few to get you started:

  • The Hartford
  • Nationwide
  • State Farm
  • AIG
  • Liberty Mutual
  • Chubb
  • Travelers
  • Progressive

Builders Risk vs. Homeowners Insurance

There are two types of insurance for homes: homeowners insurance and builders risk insurance. Homeowners insurance is for completed homes, while builders risk insurance is for homes that are still under construction. Insuring a house that is being built from the ground up is different than insuring a house that is already built. The insurance will have to be more specialized for the home that is being built.

Homeowners insurance protects your home and its contents provides coverage for additional living expenses and offers liability protection in case someone is injured on your property. Builders risk insurance, on the other hand, covers the property while it is under construction and does not include personal liability protection. General liability insurance should be provided by the builder to protect both the builder and the homeowner.

Factors that determine the cost of builders risk insurance

Just as intricate details of a project can have a significant impact on the outcome, they also influence the price you pay for the insurance. Below we list some factors that determine the cost of builders risk insurance-

Project type- There are different types of projects that can affect how much builders risk coverage costs. The most common types are New construction, Remodeling excluding the existing structure, Installation, and Remodeling including the existing structure.

Location- Location is an important factor when it comes to the builders risk insurance rates. This is because different locations have different risks. Areas prone to wildfire, hail damage, tornados, hurricanes, or heavy rainstorms etc. experience higher builders risk insurance costs.

Construction Type- The better the quality of construction, the more likely it is to withstand perils. For example, a project that is built with fire-resistant materials is likely to be rated more favorably. On the other hand, wood-frame construction (most common construction type for residential areas) catches fire easily and is not as sturdy.

Expected Completion Date- The other key factor that determines how much builders risk insurance costs is the expected date of completion of your project.

FAQ's about Builders Risk Insurance

Do I need a homeowners policy too?

Yes. If you're having a custom home built, you'll need your own homeowners insurance policy.

"Before the first shovel hits the ground on your home, you need to get your homeowners insurance in place so that you have liability coverage," says Saine. "The biggest risk of building a home is your liability in the case of a construction site accident."

Home buyers should purchase a home insurance policy with liability coverage in addition to the builders risk insurance policy, says Brunetto. Homeowners insurance will also provide coverage in case of a fire or storm damage.

If this is your first home, review insurance for new homeowners for tips before you purchase.

"Liability coverage is critical for a construction site because of the risk that someone working on the site or a child or a visitor to the site could be injured," she says. "You should take responsibility to inspect the site and make sure your builder is adequately protecting the site, but you also need to buy insurance to protect your assets in case you are sued."

Saine says most people purchase $300,000 of liability coverage, but other levels are available.

Brunetto says that you may want to buy umbrella insurance in addition to a home insurance policy for extra liability protection, particularly if you have significant assets.

Your contractor still

Do I need builders risk insurance?

Yes, but not always. You'll need a policy if you own the property and your contractor doesn't have proper coverage.

"Whether you need insurance depends on your contract," says Carol A. Brunetto, a State Farm insurance agent in Bethesda, MD.

"Sometimes, the general contractor is responsible for insurance, while other contracts say the homeowner needs to purchase builders risk insurance."

In most cases, you won't need a policy if you don't own your property yet or your contractor does have coverage. Be sure to ask your contractor what type of insurance he is carrying and what his limits are.

For example, "If you're having a home built in a community by a major builder like Pulte, there's generally no need for you to have insurance coverage because you don't actually own the lot or the home until you go to settlement," says Saine. "If you pre-purchased a lot and are having a home built on it, then you do need insurance coverage."

Saine says that the majority of consumers don't own their lot until the home is complete unless they're having a custom home built. Even then, some buyers don't own the lot until settlement.

"We recommend that you get a copy of your builder's insurance to check for adequate coverage," says Saine.

Brunetto says new home buyers should review their purchase contract to make sure they aren't obligated for insuring home construction.

"You should get a certificate of insurance from your builder that is comprehensive and includes liability coverage even on completed construction operations," she says. "For instance, if your floor collapses because of shoddy construction and someone is injured, you want to be able to turn to the builder's insurance for coverage."

Brunetto says builder's insurance policies usually cover three years after construction is complete.

To purchase a builder's risk insurance policy, enter your zip code in the upper-left-hand section of this page and see carriers that offer it.

Why do I need a builders risk insurance?

There are many reasons why you should have builders risk insurance policy. These include:

  • Protecting your assets in the event of damage to your building during its construction phase.
  • Cover for loss or damage to materials on site.
  • Cover for damage caused by faulty workmanship.

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