If you are building a new home or renovating a property, one of the first questions your lender or contractor will ask is whether you have builders risk insurance. Most homeowners and real estate investors have never heard of it until they need it. Here is what it covers, what it actually costs, and what affects your rate.
What Builders Risk Insurance Covers
Builders risk insurance is a temporary property policy that protects a structure while it is under active construction or renovation. It covers the building itself, materials on site, equipment, and temporary structures. It can also cover soft costs triggered by project delays, including additional loan interest and lost rental income, which is a gap many property owners do not think about until a covered loss pushes their timeline back by weeks or months.
Covered events typically include fire, lightning, theft, vandalism, windstorms, and explosions. The policy is active from the day construction begins and ends when one of the following happens: the project is complete and a certificate of occupancy is issued, the property is sold, or the policy term expires. Once construction ends, you transition to a standard homeowners policy.
Who Needs It
You need builders risk insurance if you are:
1. Building a new home from the ground up
2. Completing a major renovation or addition to an existing property
3. Purchasing a fixer-upper and financing the renovation
4. Developing a multi-unit residential or commercial property
Most lenders require proof of builders risk coverage before releasing construction funds. If you are paying out of pocket, it is still strongly recommended. A fire, storm, or theft during construction can leave you absorbing the full cost of materials and labor already completed.
What Builders Risk Insurance Actually Costs
This is where most homeowners get confused because the numbers published online are often wrong. Builders risk insurance is priced as a percentage of the total completed project value, typically ranging from 1% to 5%, with a minimum premium of around $700 for a 12-month policy.
For new construction, rates typically run around 30 cents per $100,000 of completed project value. Renovation and rehab projects run higher, around 65 cents per $100,000, because working within an existing structure creates additional risk. Remodeling projects can cost up to 50% more to insure than new builds for this reason.
To put that in practical terms:
• A $300,000 new construction project: approximately $900 for the policy period
• A $300,000 renovation project: approximately $1,950 for the policy period
These are general estimates. Your actual rate depends on several factors covered below.
5 Factors That Affect Your Rate
1. New construction vs. renovation - Renovation projects cost more to insure because contractors are working within an existing structure, increasing the risk of damage to what is already there.
2. Project location - Properties in areas prone to hurricanes, floods, wildfires, or severe weather carry higher premiums. Coastal and storm-prone regions are rated differently than inland areas.
3. Construction materials - Wood frame construction is considered higher risk than steel or concrete and can increase premiums by 10 to 15%. Fire-resistant materials can lower your rate.
4. Project duration - Builders risk policies are typically written for 3, 6, or 12 months. Longer projects cost more, and extensions add to the total premium if construction runs over schedule.
5. Coverage limits and deductibles - Higher coverage limits and lower deductibles increase the premium. Most policies are written to cover 100% of the completed project value. Adding optional coverages like flood or earthquake protection can raise premiums by an additional 5 to 10%.
What Builders Risk Does Not Cover
Understanding the exclusions is just as important as understanding the coverage. Standard builders risk policies do not cover:
• Flood damage (requires a separate flood policy)
• Earthquake damage (requires a separate endorsement)
• Worker injuries or contractor liability (covered under general liability insurance)
• Mechanical breakdown of equipment
• Damage caused by faulty workmanship or design errors
• Vacant land
If your project is in a flood zone, talk to your insurer before construction begins. Flood damage during construction is one of the most common coverage gaps homeowners discover too late.
When Does Builders Risk End?
Builders risk coverage ends when the certificate of occupancy is issued by your local municipality. At that point, the property is considered complete and your builders risk policy is no longer valid. A standard homeowners policy takes over from there.
This transition matters. There is a window between the end of construction and the activation of your homeowners policy where the property can be exposed if the handoff is not coordinated in advance. Work with your broker to make sure there is no gap in coverage.
How to Get a Quote
Builders risk insurance is a specialty product. Not every home insurance provider offers it, and rates vary significantly between carriers. Working with a broker who specializes in construction-related coverage gives you access to competing quotes rather than a single offer from one company.
For homeowners, developers, and real estate investors looking for builders risk coverage, Farmer Brown Insurance specializes in this type of policy and offers instant quotes for new construction and renovation projects across all 50 states.
Bottom Line
Builders risk insurance is not optional if you are building or renovating. The cost is manageable, the coverage is specific, and the risk of going without it during construction is significant. Know your project value, understand whether you are building new or renovating, and get your policy in place before construction begins.
