Builders’ Warranty vs. Builders’ Risk Insurance: What’s the Difference?

June 17, 2021

Builders may need to have several insurance policies for them to operate. The law requires them to have builders’ warranty insurance and public liability insurance, among others. For those who are new to the industry, the different insurance policies can get confusing.

Builders’ warranty insurance and builders’ risk insurance, for instance, are two different but equally important coverage. One protects your clients, and the other protects you and your business.

IMAR, a trusted insurance provider of builders, explains the difference between the two policies. Read on to find out why you should consider both to operate your business safely.

Builders’ Warranty Insurance

Please note that we no longer provide this service


Most states require builders to have this coverage before you can start residential building work. Builders’ warranty insurance is also known as home warranty insurance and building indemnity insurance, depending on where you live. These name variations add to the confusion as to what the policy covers, but its main purpose is to protect your clients.

Builders’ warranty insurance protects the homeowner in the event that you, the builder, can’t finish the project or fix any defects because you:

  • Died
  • Disappeared
  • Became bankrupt
  • Got deregistered

The policy provides coverage throughout the build and for a predetermined period once you finish the project. After the build, the homeowner generally has six years of coverage for structural defects and two years for non-structural defects. The length of the coverage varies per state.

Builders Liability Insurance

Builders Liability Insurance, on the other hand, is designed to protect you. It can have varying coverage, including injury and illness insurance, tools insurance and disability insurance. The goal is to protect your income in case something unfortunate or unexpected happens.

Here are some of the coverage you want to consider:

  • Injury and illness insuranceThis covers the income you lost during the period you’re unable to work due to an injury or illness.
  • Total and permanent disability insurance: This insurance pays out a lump sum if you become permanently or totally disabled due to an injury or illness. Insurers have different definitions of ‘total and permanent disablement.’ Some require an inability to continue working in your own occupation, while others accept the inability to work any occupation ever again. Your insurer’s definition will determine their likelihood of paying you.
  • Tools and stock insuranceThis covers the cost of tool replacement in case of loss or theft, as long as you’re not at fault. It doesn’t cover wear and tear from overuse, deliberate damage, cosmetic damage and manufacturing faults.

You can get separate policies for each protection you need. Another option is builders’ construction insurance, which combines all the protection you need in one policy.

Ultimately, builders should consider the need of both kinds of insurance even if they weren’t mandated by law. These policies will safeguard you financially in case of an unfortunate event. Additionally, clients will be more willing to trust you with their residential building needs if they know that you’re adequately insured.

Work only with a reputable insurance broker to make sure that your policy provides all the protection you need.

Protect Your Business with Builders’ Insurance

For more than 35 years, IMAR has been looking after the specialist insurance needs of tradies, builders and small businesses. Our insurance schemes safeguard your business from potential losses, and in turn, protects your livelihood.


Contact our experts today to learn more about how you can protect your business and your clients.


To the extent that any material on this page may be considered advice, it does not take into account your objectives, needs or financial situation. You should consider whether the advice is appropriate for you and review any relevant Product Disclosure Statement and policy wording before taking out an insurance policy.

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