In any question of insurance, when coverage is not legally mandated or otherwise required by a client, the defining determinant is whether you can cover the damages yourself should something happen. Insurance is there to cover risks that we cannot comfortably pay for ourselves. This extends to builder’s risk insurance on DIY construction projects: if something goes wrong, can you pay for it?
This does not just include the structure itself, but also liability concerns. If you are bringing people on-site to help you with your project, can you pay for any medical costs that may arise should they be injured? If you are building on rented property, can you pay for the damages to that property should you accidentally break an underground water pipe or knock a fence down?
For small, one-person projects, it may not be necessary to invest in builder’s risk insurance. There is not a lot of risk in spending an afternoon building a dog house in your own backyard. But building an addition to your house — and bringing on a few friends from work to help you get the project done — may invite certain risks that you would not be comfortable paying for out of pocket.
Builder's risk insurance may be mandatory in a few specific scenarios:
- Taking out a construction loan
- Building a project for a client
- Adding on to a building still under mortgage
- Building on rented property
In these instances, it is at the discretion of the other party — the client, lender, or landlord. Otherwise, it is at the discretion of the builder.
The best advice is to be realistic about the scale and scope of your project. You might be able to build a simple tool shed on your own without inviting any additional risks. But when building a cabin or additional bedrooms — or doing extensive remodeling — you need to take the time to consider whether you can afford to pay for it out-of-pocket if something goes wrong.