Builders Risk Insurance for Homeowner Jobs: Who Buys It

A standard homeowners policy usually isn't built to cover a house that's been gutted for a big remodel or is going up from a bare slab. That's where builders risk insurance comes in on a homeowner's project. It's temporary property coverage for the structure and the materials on site while the work is underway. Either the homeowner or the contractor can buy it, and on your jobs the contract should say which of you does before anyone starts demolition.

At the bid: who buys builder's risk on a homeowner's job?

When you price a kitchen gut, a room addition or a custom home, builder's risk is a cost somebody has to carry. Policygenius says the policy is provided by either the general contractor or the property owner, and it tells homeowners to check the contract to see who's responsible. State Farm agrees that either the property owner or the contractor can buy it. When the contract is silent, each side tends to assume the other one handled it. That's how a framed addition ends up with no coverage at all.

There are good reasons to go either way. If the homeowner buys it, the premium stays out of your bid and any claim money goes to the person who owns the house. If you buy it, you control the start date, the limit and the deductible, and you can build the cost into your price. Either way, the coverage is meant to protect both of you. A Sonoma County, California guide to contract insurance requirements describes builders risk as insuring owners and contractors against damage to structures during construction.

If the client is borrowing to pay for the work, the bank may decide for you. Insurance.com notes that construction lenders often require builder's risk. So before you sign, ask whether there's a construction loan. If there is, find out what the lender needs to see and by when.

Why the client's homeowners policy usually won't carry the job

You'll hear it all the time: "My house is already insured." For a finished house with a family living in it, that's true. Policygenius puts it plainly. Homeowners insurance is meant for completed homes, and builders risk is meant for homes under construction. A typical homeowners policy doesn't cover a dwelling that's still being built.

Even when the family stays put during a remodel, the homeowners policy has gaps right where the construction risk sits. MoneyGeek lists collapse during a renovation, damage caused by the construction work itself, and losses from faulty workmanship as excluded, even if the owner told their insurer about the project. It also points out that fire is a bigger worry mid-build because the sprinklers aren't in yet.

MoneyGeek offers a handy test. If a project lasts more than two months, forces the family to move out, or puts a lot of uninstalled materials on site, it calls for builder's risk. Plenty of remodels pass that test easily, whether it's a whole-house job while the family rents somewhere else or an addition with windows, cabinets and flooring stacked in the garage for weeks.

That doesn't make the homeowners policy irrelevant. Builder's risk doesn't replace it. Insurance.com says an owner still needs homeowners insurance during construction because builder's risk doesn't include personal liability, and many owners end up carrying both. Ask your client to call their own agent before demolition starts. On small jobs like paint or a vanity swap, that agent can tell them whether the existing policy is enough.

Getting a builders risk insurance quote before demolition starts

Quotes come back fastest when the project details are already pulled together. Farmer Brown says the final premium depends on project size, construction type, location, timeline and the coverage you choose. Add-ons like flood or extra soft costs coverage push the price up too.

Published percentage estimates are all over the place. Farmer Brown says builder's risk usually runs around 0.5% to 1% of the total building or construction value, while Coverwatch puts it at 1 to 4 percent of a project's total completed value. Treat those ranges as rough guides, not numbers to bid with. Get a real quote on the real job, and if the policy is yours to buy, get it before you lock in your price.

Before you ask for a quote, have these ready:

• The job address, and whether it's new construction, an addition or an interior remodel
• The completed value of the work, and whether the existing house needs to be included in the limit
• The start date and expected length of the job, with room for permit and inspection delays
• Construction type (wood frame, masonry and so on) and any work on the roof or exterior walls
• Where materials will be kept: on site, in transit, or at your shop or a storage unit
• Everyone who needs to be named on the policy, including any lender

Term length matters too. Policygenius says builder's risk policies are typically sold in three, six, nine or twelve month terms, and a renovation or room addition may only need three months. But remodels rarely finish early. Ask how extensions work and what they cost before you pick the shortest term.

What builder's risk pays for while the job is open, and what it doesn't

NASBP describes builder's risk as first-party property insurance. In other words, it pays for damage to the insured's own project, not for claims other people bring against you. Every builder's risk policy covers the new work, but on a remodel the existing house may be covered only if you ask for it. The Sonoma County guide lists the kinds of property involved: partly finished structures, materials meant to become part of the building, and materials stored elsewhere or in transit. That last one matters when the client's windows are sitting at your shop. The same guide says you have to review each policy to see what it actually covers.

There are two basic types. A "named perils" policy covers only the risks it lists, while an "all-risk" policy starts broad and then trims coverage back with exclusions. Farmer Brown lists fire, smoke, explosion, theft, vandalism, wind and hail (with coastal limits), lightning, and soft costs. Soft costs are the extra expenses, like architect fees, permit costs and financing charges, that pile up when a covered loss delays the project. The same page says general liability and workers' comp aren't included, and earthquakes and floods are excluded unless you add them.

Coverage also varies by insurer. State Farm says its builder's risk can include liability protection for non-employees hurt on the site, but many other policies carry no liability coverage at all. Check the declarations page (the summary page listing what's covered and the limits), not the sales page.

For the injury and damage claims builder's risk leaves out, see how general liability works for contractors and what a general contractor owes for workers' comp. If subs are on the job, check their coverage as well. This guide on what subcontractors need and what GCs should check walks through it.

When something goes wrong in the middle of the job

Here's where the paperwork from the bid stage pays off. When everyone knows whose policy covers what, a bad week stays a bad week instead of turning into a fight over money.

Report a loss quickly and photograph everything before you clean up. Then do what you reasonably can to prevent more damage, like re-tarping or locking up what's left. Most property policies have a section spelling out your duties after a loss, so read it before you need it. If you bought the policy, you'll probably handle the claim. If the homeowner bought it, help them out with dates, invoices and photos, since your schedule depends on that claim getting paid.

Closing out: when coverage ends and the homeowner's policy takes over

Builder's risk is temporary by design. NASBP notes that coverage may end when permanent property insurance is purchased. Coverwatch says it ends at whichever comes first: occupancy, acceptance, or roughly 90 days after completion. That can leave a stretch when the house has no insurance until the permanent policy kicks in.

Keep an eye on that gap in the last few weeks of a remodel. The family might move back in during the punch list, or the final inspection might drag past the policy's end date, and either one can leave the house without the right coverage. Have the homeowner line up their regular policy (or update it for the bigger, finished house) so it starts the same day builder's risk ends. As Insurance.com explains, homeowners insurance covers the finished home, the family's belongings, liability and extra living expenses, so it needs to be in place when the work wraps up.

If the job runs late, extend the builder's risk before it expires, not after. Once something has already gone wrong, expired coverage is very hard to get reinstated.

What to ask the agent and write into the contract

Take these questions to a licensed agent, and write the answers into your contract with the client:

• Named insured. Who's on the policy: the owner, you, or both? Are your subs covered for their materials and work in place? Coverwatch recommends confirming the named insureds and waivers before the policy is issued. A waiver of subrogation is an agreement that the insurer won't sue the other party after paying a claim.
• Form type. Is it named perils or all-risk, and what does the exclusions page say about faulty work, theft and water?
• Limit and change orders. Does the limit match the completed value, and how do you raise it when the client adds to the scope partway through?
• Liability. Does this policy carry any liability coverage, or does that come only from your general liability and the homeowner's own policy?
• End date. What ends coverage (occupancy, completion, or a fixed date), and how does an extension work?

You'll also want to know the limits for materials in transit and in off-site storage, whether there's a separate wind deductible, and whether flood and earthquake are available for this address and at what cost. Ask whether permit fees, design fees and loan interest are covered if a loss delays the job, and whether any premium is refunded if the job is canceled or finishes early.

If the client wants proof of coverage, settle it while you're still bidding, not on the morning of the first delivery. A licensed agent in the job's state can tell you what's available there and what the lender or local building department will accept.