Why Builder's Risk Insurance Matters for Your Construction Project

When you're investing in a custom home build, renovation, or addition, protecting that investment should be a top priority. That's where builder's risk insurance comes in—a crucial coverage that fills gaps your existing insurance policies might not cover.

Recently, we sat down with Rhonda Taylor from Blackford Business Solutions to break down what builder's risk insurance is and why it's essential for homeowners and contractors alike.

What Exactly Is Builder's Risk Insurance?

Builder's risk insurance is coverage specifically designed for construction projects, whether you're building a new custom home or renovating your existing space. It's especially important for renovations, where multiple insurance gaps can leave you vulnerable.

The Coverage Gap You Didn't Know Existed

Here's something that surprises many homeowners: your homeowner's policy and your contractor's general liability insurance don't cover everything during a construction project.

Your homeowner's policy will cover your existing home structure during a renovation, but it won't protect new materials or unfinished work. Your contractor's general liability typically covers faulty workmanship, but not materials sitting on your job site or products in transit.

So what happens if $100,000 worth of windows gets stolen from your property before installation? Or if a hurricane damages materials stored on-site? Without builder's risk insurance, you're not covered.

What Does Builder's Risk Actually Cover?

Builder's risk insurance fills these critical gaps by covering:

• Materials on the job site

• Materials in transit to your project

• Unbuilt products and portions of the home

• Ordinance of law compliance issues

• Demolition costs

• Specialty items like scaffolding (when needed)

Optional coverage can include wind damage and flood protection, depending on your location and project timeline.

Understanding the Investment

Builder's risk insurance typically costs between 0.5% to 2% of your project's construction cost (not the total price). For renovations, expect around 0.5% to 1% of the cost. New construction usually runs 1.3% to 2%, depending on the scope and additional coverages you select.

Why does new construction cost more? It covers significantly more since there's no existing structure. However, you can get renovation policies that cover both the existing structure and new work, which brings the cost closer to that 2% range.

Customizing Your Coverage

One of the benefits of builder's risk insurance is its flexibility. Every policy can be tailored to your specific project needs. For example, if your project doesn't require scaffolding, you can reduce that portion of coverage and lower your premium. Need additional demolition coverage beyond the standard amount? That can be added.

Working with an experienced agent helps ensure you're getting the right coverage for your specific situation without paying for protection you don't need.

Who Holds the Policy?

Either the homeowner or the contractor can be the named insured on a builder's risk policy. At MCG Homes, we require all renovation and new construction clients to have builder's risk coverage in place. Many banks, particularly those offering SBA loans for commercial projects, require it as well.

The policy holder files any claims, and if there's a lien holder like a bank financing the project, they're typically named as an additional insured to protect their investment.

The MCG Homes Difference

At MCG Homes, we believe in transparency. While many contractors simply build builder's risk insurance into their pricing without discussion, we take a different approach. Because we often work on a cost-plus basis, we openly discuss builder's risk insurance with our clients and give them the option to secure the policy themselves or have us handle it.

What matters most to us isn't who pulls the policy—it's that proper coverage is in place to protect your investment.

The Bottom Line

Construction projects represent significant investments. Without builder's risk insurance, you're leaving materials, unfinished work, and potential ordinance compliance issues unprotected. It's a smart, essential coverage that ensures your project stays on track, even when the unexpected happens.

Have questions about builder's risk insurance for your upcoming project? Our team at MCG Homes is here to help guide you through every aspect of your custom home build or renovation, including the insurance coverage that protects your investment.