Builder's risk insurance for a home under construction

Builder's risk insurance covers a building while it is being built or heavily rebuilt, including the materials sitting on the site. It is a property policy for an unfinished structure, and it ends when the project is complete or someone moves in. If you are buying a house from a builder, the builder buys it. If you hire a contractor for a custom home, the contract decides who does. If you act as your own general contractor, you almost certainly do, because a standard homeowners policy is not built for a house with no roof.

The terms below come from the ISO builders risk forms as reported by the trade press, and from the ISO HO-3 (HO 00 03 05 11). Specialty residential builder's risk policies differ by insurer, so your policy's declarations and form control.

What builder's risk covers

The core of the policy is the building under construction: foundation, framing, roof and the permanent fixtures and systems going into it. It also covers building materials and supplies that will become part of the structure, and temporary structures such as scaffolding and concrete forms. Coverage for materials stored off site or in transit is usually an extension you have to request.

Perils are broad. Fire, wind, hail, lightning, vandalism and collapse are usually covered, and most builder's risk forms are written on an open-perils or special-form basis. The exclusions are where the limits show up. According to FC&S commentary on the ISO inland marine builders risk form (IH 00 70), the usual ones include:

• faulty or defective workmanship, materials, design or maintenance, though a covered loss that results from the fault is paid
• ordinance or law, earthquake and flood, with earthquake and flood often available by endorsement
• rain, sleet, ice or snow entering the building before the exterior is complete
• wear and tear, mechanical breakdown, rust and corrosion
• limited coverage for fungi and rot, and a cap on pollutant cleanup

Source: FC&S on the Builders Risk Coverage Form. Rain entering an unfinished roof is the claim that surprises people most. If the framers leave the house open for a week before the roof goes on and a storm soaks the subfloor, the exclusion can apply. Ask how the policy treats weather damage before the building is "dried in."

Theft terms vary more than any other part of the policy. Employee theft and theft from unattended vehicles are commonly excluded, and many policies limit theft of materials that are not yet installed. If your lot is isolated, ask what site security the insurer expects.

Builder's risk is property insurance only. It does not cover injuries to people, and it does not insure the contractor's tools or equipment, which sit on the contractor's own policy.

Who has to buy it

The answer is in your contract. In the AIA family of construction contracts, the 2017 insurance exhibit puts the obligation to buy builder's risk on the owner, with the owner, contractor and subcontractors as insureds (Smith Amundsen). The parties can shift that duty to the contractor in the contract. A production builder's sales contract works differently, because the builder owns the house until closing and carries its own policy. Custom-home builders write contracts either way.

Construction lenders typically require the coverage before they release money, since the unfinished house is the collateral. The lender is usually named as mortgagee or loss payee on the policy. Your lender's written requirements will say what it needs and when, and the insurance binders and proof of insurance at closing guide covers the paperwork.

Setting the limit

The limit should equal the value of the finished project, not only the contract with the general contractor. Cost that you pay for outside the contract still needs to be insured. Here is a hypothetical. Say a contractor bids $380,000 to build your house. You buy $40,000 of cabinets and appliances directly and plan to do $15,000 worth of trim and painting yourself. The completed-value total is about $435,000, and a limit set at $380,000 would leave you $55,000 short if the house burned the week before you moved in. Owner-supplied labor counts at what it would cost to hire out.

Use the same discipline as a homeowners policy. The home replacement cost estimator gives a sanity check, and the homeowners coverage gap checker can flag what you have not insured. Land is not part of the limit, and neither is grading and site work unless your policy lists it.

Policies are usually written for a fixed term, often 12 months. If the build runs long, ask what an extension costs before you sign. A project that slips past the term with no extension in place can be left uninsured at its most expensive stage.

Flood, wind and the NFIP

Coastal and flood-zone builds raise the hardest questions. Builder's risk can exclude flood, sublimit named-storm wind or carry a high wind deductible, particularly near the coast. Get the flood and named-storm terms in writing before you pour the slab.

The National Flood Insurance Program does cover a building under construction, with strict conditions. Under the Standard Flood Insurance Policy Dwelling Form, a building that is not yet walled and roofed is covered only while work is in progress, or for up to 90 continuous days if work stops. Coverage does not apply until the building is walled and roofed if the lowest floor is below the base flood elevation in a high-risk zone. The deductible doubles when the building lacks at least two rigid exterior walls and a fully secured roof at the time of loss. A policy that insures a building under construction also cannot be assigned to the buyer (44 CFR Part 61, Appendix A(1), eCFR%20to%20Part%2061), as of Oct. 2026). The standard 30-day waiting period applies to new NFIP policies, with a loan-closing exception described in the 30-day flood insurance waiting period. Plan on this early.

Why your homeowners policy does not fill the gap

The HO-3 does take some notice of construction. Coverage A includes materials and supplies on or next to the premises for use in building or repair. But the same form excludes theft "in or to a dwelling under construction, or of materials and supplies for use in the construction until the dwelling is finished and occupied." On the liability side, the form treats land on which a dwelling is being built as a residence for an insured as an "insured location," which is helpful, but it is liability, not property damage to the unfinished house.

For a small project on a house you live in, many insurers will simply extend the existing policy if you tell them about the work. For a new house, a major addition, or a renovation that leaves the home vacant or open to the weather, builder's risk is the right tool. An unoccupied renovation can also run into the vacancy provisions covered in vacancy and unoccupancy exclusions, and vacant home insurance: when you need it and what it covers explains the policies written for that.

Liability and injured workers

Builder's risk does not pay when someone is hurt. A California Contractors State License Board notice warns owner-builders that if a worker is injured on the property, "you could be asked to pay for injuries and rehabilitation through your homeowner's insurance policy" (CSLB owner-builder notice). Whether workers' compensation applies to you as an owner-builder depends on your state. Ask your agent about liability limits and see injured contractors and workers at your home. Require a certificate of insurance, showing general liability and workers' compensation, from every contractor and subcontractor before they start.

When it ends and your homeowners policy begins

Builder's risk is meant to end when the structure is finished or accepted. The ISO inland marine form ends coverage when the policy expires, the purchaser accepts the property, your interest ends, or construction is abandoned. Unless the insurer states otherwise in writing, it also ends 90 days after construction is complete or 60 days after the building is occupied, in whole or in part, or put to its intended use (FC&S, same source). A policy written by a specialty carrier may use different dates.

Your homeowners coverage should begin no later than the day builder's risk ends, and ideally on the day you take occupancy or the certificate of occupancy is issued. Ask your builder's risk agent for the written termination terms, then align the dates.

Questions to ask before you sign

1. Who is buying the policy, and who are the insureds? The owner, the general contractor, the subcontractors and the lender should all be listed.
2. Is the limit set on the completed value, including owner-supplied materials and labor?
3. How does the policy treat flood, named-storm wind and rain damage before the building is closed in?
4. What are the deductibles, and is there a separate wind deductible?
5. What site-security conditions apply to theft of materials?
6. How long is the term, and what does an extension cost?
7. When does coverage end, and what has to be in place on that date?

Key takeaways

• Builder's risk insures the unfinished structure and its materials; it does not cover injuries, and a standard homeowners policy is not a substitute.
• Your contract decides who buys it. Owner-builders must, and lenders require it on construction loans.
• Insure the finished value, including materials and labor you supply yourself.
• Check how the policy handles flood, named storms, rain before the roof is on, and theft of materials.
• Line up your homeowners policy to start the day builder's risk ends.