Builder's risk insurance

Builder's risk insurance covers a structure while it is being built or substantially renovated, along with the materials and equipment on site.

It exists because the ordinary policies do not reach the situation.

The gap it fills#

A homeowners policy is written for a completed, occupied dwelling. A property under construction is none of those things, and the vacancy provisions in the policy restrict coverage well before the renovation is finished.

A vacant property policy covers an empty building, and typically not construction risk, materials on site, or the exposures that come with an open structure and people working in it.

A renovation project sits between the two, and that is where uninsured losses happen.

What it covers#

The structure under construction.

Materials and supplies on site, and frequently in transit or in storage awaiting installation.

Coverage runs for the project term and ends at completion or occupancy — which means the policy has an end date the project has to be planned around.

Why it matters on distressed property#

This is exactly the profile.

A property bought at a sheriff's sale, from an estate, or at a tax-forfeited land sale is usually vacant, usually needs substantial work, and is usually being renovated by an owner who did not previously insure it.

That combination — empty, open, full of new materials, unoccupied overnight — is attractive to theft and vulnerable to weather and fire in a way an occupied house is not.

Copper, fixtures, appliances and tools disappear from renovation sites regularly.

Who buys it#

Whoever bears the risk of loss under the contract.

On an owner-directed renovation, usually the owner. On some builds, the general contractor.

The contract should say, and the failure mode is both parties assuming the other arranged it. Confirming the property is actually covered, by name, before work starts costs one phone call.

Lenders will require it#

Any construction loan, 203(k) or hard money loan funding a renovation will require coverage naming the lender.

That requirement is worth meeting properly rather than minimally. A lender protected by a policy that does not cover the owner's own interest leaves the owner carrying the uninsured portion of any loss.

When the project runs long#

The policy term is finite and projects overrun.

Extensions are available and cost money, and a lapse mid-project leaves the most exposed asset uninsured at the point it is most exposed. Diarise the expiry alongside the loan maturity.