Summary of Key Points
- Builder’s risk insurance protects the home itself while it is under construction, before a homeowner’s policy can take effect.
- Materials, supplies, and certain on-site equipment intended for the project are also covered.
- Common perils include fire, theft, vandalism, and lightning, with wind and hail handled carefully on the coast.
- Soft costs such as additional loan interest and architect fees can be added by endorsement.
- Coverage starts at groundbreaking or material delivery and ends at occupancy or policy expiration
Building a custom home is one of the largest financial commitments most families take on. Between materials arriving on site, contractors and subs moving through every day, and the building itself taking shape over many months, the project carries real exposure along the way.
Builder’s risk insurance is the policy designed to absorb that exposure. Homeowners are often unclear on what exactly it covers, especially when they are new to the construction process. This guide walks through the coverage in plain terms so you can review your own policy with a clearer view of what is, and is not, included. For a high-level overview of the product, our builder’s risk insurance page provides additional context.
The Structure Itself While Under Construction
At its core, builder’s risk insurance protects the physical structure of the home while it is being built. That includes the foundation, framing, exterior sheathing, roofing, drywall, and any permanent fixtures installed as construction progresses. If a fire, storm, or other covered event damages the partially built home, the policy responds by covering the cost to repair or replace what was lost.
It is sometimes described as homeowner’s insurance for a home that does not yet exist as a finished building. Before the certificate of occupancy is issued, a standard homeowner’s policy will not respond to claims on the property. Builder’s risk fills that window.
Materials, Supplies, and Equipment On Site
Coverage extends beyond the structure to include the materials and supplies waiting to be installed. Lumber, drywall, cabinetry, fixtures, and appliances sitting at the job site are all part of the policy, provided they are intended for use in the project being insured.
Many policies also extend to certain temporary structures at the site, such as scaffolding, fencing, signs, and on-site builder’s trailers. The specifics vary by carrier, so confirming what is included before construction begins is worthwhile.
Common Covered Perils
Most builder’s risk policies are written on a named-perils basis, meaning the policy lists the specific events it will respond to. The most common covered perils include:
- Fire, lightning, and explosion
- Theft of materials or installed components
- Vandalism and malicious mischief
- Damage from vehicles or aircraft
- Falling objects
- Smoke damage
- Civil commotion and riot
Some policies are written on a broader open-perils basis, which covers losses unless a peril is specifically excluded. Open-perils policies generally provide wider protection but cost more and still carry meaningful exclusions.
Coverage While Materials Are in Transit and at Off-Site Storage
Construction materials are vulnerable before they ever reach the job site. Many builder’s risk policies extend coverage to materials in transit and to items held in temporary off-site storage, such as a warehouse holding custom millwork until the home reaches the right stage.
Sublimits typically apply. A policy might cover the structure to its full projected value but cap in-transit losses at a fraction of that amount. For high-value coastal homes with imported finishes or custom millwork, those sublimits matter and should be reviewed before the first shipment leaves the supplier.
Soft Costs and Other Indirect Losses
A covered loss often does more than damage materials. A fire that delays the project by six months can trigger a cascade of indirect expenses, even when the physical damage is fully reimbursed. Builder’s risk policies can be extended to cover these soft costs, including:
- Additional construction loan interest during the delay
- Real estate taxes that continue to accrue
- Extra architect, engineer, or inspection fees
- Permit renewal or extension costs
- Marketing or carrying costs tied to the original completion date
Soft cost coverage is not automatic. It is added by endorsement and worth discussing during the policy design conversation, particularly for projects with tight financing terms or scheduled move-in dates.
When Coverage Starts and Ends
Builder’s risk coverage begins and ends at defined moments in the construction process. Coverage usually begins when materials arrive at the site or when groundbreaking occurs, whichever comes first. It runs through construction and typically ends at the earliest of three triggers: the certificate of occupancy is issued, the home is occupied, or the policy term expires.
Many projects exceed their original timeline. Most policies allow extensions, but they are not automatic. Discussing the timeline up front and reviewing it as construction progresses is the cleanest way to avoid a gap between builder’s risk and the homeowner’s policy that follows.
Coastal Construction Has Specific Considerations
Builder’s risk policies written for Charleston, Kiawah, Seabrook, and the surrounding Lowcountry often include considerations a standard inland policy would not. Wind and hail coverage may be sublimited, carry a separate deductible, or in some cases be excluded depending on the carrier and proximity to the coast. Flood is a separate matter entirely and is not included in any builder’s risk policy. For a fuller view of how the various policies work together to protect a coastal home, our coverage types page provides additional context.
Frequently Asked Questions About Builders Risk Coverage
Who buys the builder’s risk policy, the homeowner or the builder?
Despite the name, the policy is typically purchased by the future homeowner. The builder carries general liability for the work they perform, but the property itself is the homeowner’s responsibility to insure during construction. Most custom-home contracts explicitly require the homeowner to maintain a builder’s risk policy throughout the build.
Does my builder’s risk policy cover the builder’s mistakes?
No. Faulty workmanship, faulty design, and faulty materials are not covered. That is a matter handled through the contractor’s general liability and the construction contract, not the builder’s risk policy.
How is the policy limit determined?
The limit is generally set to the projected completed value of the home, including labor and materials. Underinsuring the project is a common mistake, particularly when budgets shift during construction.
Can the policy be extended if construction takes longer than expected?
Yes, in most cases. Extensions are written as endorsements to the existing policy, often in three or six month increments. Requesting the extension before the original term expires is straightforward. Requesting it after the policy has lapsed is much more complicated.
Knowing What Your Builders Risk Insurance Policy Covers
Builder’s risk insurance is the financial backbone of any custom home project, but the coverage is only as strong as the way the policy is designed. Knowing what your builder’s risk insurance covers, where the sublimits sit, and how the timeline maps to the policy term is the difference between confidence during construction and an unwelcome surprise. If you have a project planned or already underway, a brief conversation can confirm the right structure is in place. You can request a quote or call the agency at (843) 819-3304.