Builder’s risk insurance for construction is a temporary property insurance policy that may help protect a home, building materials, and certain construction-related property while a home is being built or renovated.
It is also commonly called:
Course of construction insurance Dwelling under construction insurance Construction risk insurance Builder’s risk coverage The quick answer is:
Builder’s risk insurance helps protect a construction project before the home is completed, and construction lenders may require it before closing or before funds are released.
If you are using a construction loan, construction-to-permanent loan, or land-and-build loan, builder’s risk insurance may be part of the lender’s required documentation.
Loan Factory does not provide insurance advice or sell builder’s risk insurance. However, if you are financing a home build, it is important to understand why this coverage may matter in the loan process.
Quick Answer: What Is Builder’s Risk Insurance? Item
What It Means
Main purpose Helps protect property during construction Also called Course of construction insurance Common use New builds, major renovations, construction projects Policy period Usually temporary during construction May cover Structure, materials, fixtures, equipment, depending on policy May exclude Liability, worker injuries, poor workmanship, wear and tear, certain weather events, depending on policy Who may require it Lender, builder, contractor, investor, or property owner Mortgage relevance May be required for construction loans or construction-to-permanent loans
Builder’s risk insurance is not the same as regular homeowners insurance.
A standard homeowners policy may not fully cover a house while it is still under construction.
Why Builder’s Risk Insurance Matters for Construction Loans When a home is under construction, the lender is financing a property that is not finished yet.
That creates risk.
During construction, the project may be exposed to:
Fire Theft Vandalism Wind or storm damage Damage to building materials Damage before the home is completed Certain extra costs caused by delays after covered property damage, if included in the policy Losses before permanent homeowners insurance begins Because of this, lenders may want proof that the project is insured during the construction phase.
If builder’s risk insurance is missing, the construction loan closing, first draw, or later construction draws may be delayed.
To better understand how construction financing works, read our guide: What Is a Construction Loan?
Builder’s Risk Insurance vs. Homeowners Insurance Builder’s risk insurance and homeowners insurance are not the same.
Feature
Builder’s Risk Insurance
Homeowners Insurance
Property status Under construction Completed and occupied Policy period Temporary during construction Ongoing after completion Main focus Construction project and materials Finished home and personal property Lender use Often required for construction loans Required for regular mortgages Timing Before or during construction Usually before final closing/occupancy Coverage Depends on project and policy Depends on homeowners policy
If you are building a home, you may need builder’s risk insurance during construction and homeowners insurance when the home is complete.
The exact timing should be confirmed with the lender, builder, and insurance professional.
What Does Builder’s Risk Insurance Usually Cover? Coverage varies by policy, insurer, project, and state.
A builder’s risk policy may cover certain physical property losses related to:
Possible Coverage Area
Examples
Structure under construction Partially built home Building materials Materials on site, depending on policy Fixtures Items intended to become part of the home Equipment Equipment intended for installation in the home, depending on policy Theft Stolen materials or covered property Fire Damage from covered fire event Vandalism Damage caused by vandalism Weather-related damage Certain covered weather events, depending on policy Temporary structures May be covered if included Debris removal May be available if included Soft costs May be available by endorsement
Not every policy covers the same items.
The borrower or builder should review the policy carefully with a licensed insurance professional.
What May Not Be Covered? Builder’s risk insurance has exclusions and limits.
Common items that may not be covered include:
Worker injuries General liability claims Faulty workmanship Poor design Normal wear and tear Mechanical breakdown Earthquake, unless added Flood, unless added or separately covered Employee theft Tools owned by contractors Damage after occupancy Losses after policy expiration Certain weather risks, depending on location and policy The cost of correcting faulty work may be excluded, but resulting damage may be covered depending on the policy.
This is why builder’s risk insurance should not be treated as “everything is covered.”
It is a specific type of property coverage for a specific construction period.
Builder’s Risk Insurance vs. General Liability Insurance Builder’s risk insurance usually focuses on property damage to the construction project.
General liability insurance is different.
Insurance Type
Main Purpose
Builder’s risk insurance Helps protect the structure/materials during construction General liability insurance Helps protect against certain third-party injury or property damage claims Workers’ compensation Covers eligible worker injuries, depending on state and policy Homeowners insurance Covers the completed home after construction and occupancy
A construction lender may ask for more than one insurance document.
The builder may also need to provide proof of liability insurance, license, and other required documentation.
Who Buys Builder’s Risk Insurance? The responsible party depends on the contract, lender requirements, builder arrangement, and project structure.
Builder’s risk insurance may be purchased by:
Homeowner Builder General contractor Property owner Developer Investor Borrower using the construction loan The construction contract should clearly state who is responsible for buying and maintaining the policy.
Before signing a builder contract, ask:
“Who is responsible for builder’s risk insurance, and does the lender need to be listed on the policy?”
That one question can prevent delays later.
When Do You Need Builder’s Risk Insurance? Builder’s risk insurance may be needed before construction begins or before loan funds are released.
Common timing may include:
Timing
Why It Matters
Before construction loan closing Lender may require proof of coverage Before first draw Funds may not be released without insurance Before materials are delivered Materials may need protection During construction Coverage may need to stay active until completion Before conversion to permanent mortgage Lender may require transition to homeowners insurance Before occupancy Policy may need to change once the home is complete
A policy that starts too late or ends too early can create coverage gaps.
How Builder’s Risk Insurance Fits Into a Construction Loan A construction loan has more moving parts than a standard mortgage.
Builder’s risk insurance may be part of the lender’s project review.
The lender may review:
Borrower qualifications Builder contract Construction budget Plans and specifications Appraisal based on completed value Draw schedule Building permits Insurance documentation Title documents Builder license and insurance Course of construction coverage If the builder’s risk policy does not meet lender requirements, closing or draw release may be delayed.
For the financial paperwork lenders commonly request, see our mortgage application document checklist . Construction loans may require additional builder, project, and insurance documents.
What Lenders May Look for in the Policy Lender requirements vary, but a construction lender may review whether the policy includes:
Correct borrower or project name Correct property address or legal description Adequate coverage amount Builder or owner listed correctly Lender listed as mortgagee or loss payee, if required Policy effective date Policy expiration date Coverage during full construction period Deductible amount Type of construction project Required endorsements, if applicable The lender may not approve the insurance document if names, address, coverage amount, or lender clause are incorrect.
This is why borrowers should coordinate early with the lender and insurance provider.
How Much Builder’s Risk Insurance Do You Need? Coverage amount depends on the project and policy.
The coverage limit may be based on:
Total construction budget Estimated completed value Replacement cost Materials and labor Soft costs, if included Lender requirements Builder contract Project scope A construction lender may have specific coverage requirements.
The borrower should not guess the coverage amount. The insurance professional and lender should confirm the required limit.
How Much Does Builder’s Risk Insurance Cost? Builder’s risk insurance cost can vary widely.
It may depend on:
Project value Location Construction type Project timeline Coverage amount Deductible Weather risk Theft risk Fire risk Flood or earthquake exposure Security measures Builder experience Policy endorsements A small residential build may have a very different cost than a large custom home or high-risk location.
Borrowers should request quotes early so the insurance cost can be included in the construction loan cash-to-close plan.
For a broader view of building expenses, review our home construction cost breakdown when preparing your project budget.
Does Builder’s Risk Insurance Cover Materials? It may, depending on the policy.
Some policies may cover materials:
On the job site In temporary storage In transit Waiting to be installed However, this depends on the policy language.
If expensive materials, appliances, fixtures, cabinets, windows, or specialty items are being delivered before installation, ask whether they are covered and where they are covered.
The location of materials can matter.
Does Builder’s Risk Insurance Cover Theft? It may cover theft of certain covered property, depending on policy terms.
However, exclusions and limitations can apply.
Borrowers should ask:
Are materials covered if stolen from the site? Are materials covered in transit? Are materials covered in off-site storage? Is contractor equipment covered? Are tools excluded? Is there a theft deductible? Are security measures required? Theft coverage should never be assumed.
It should be confirmed.
Does Builder’s Risk Insurance Cover Weather Damage? It may cover certain weather-related damage, depending on the policy.
But coverage can vary significantly by location and risk.
Some policies may limit or exclude:
Flood Earthquake Windstorm Hurricane Water intrusion Named storms Freeze damage If you are building in a high-risk area, ask about weather exclusions and whether separate coverage is needed.
This is especially important in areas with flood, wildfire, hurricane, wind, or earthquake exposure.
Builder’s Risk Insurance for Renovation Projects Builder’s risk insurance may also apply to major renovations, not only new home construction.
It may be relevant if you are:
Adding square footage Doing structural renovations Rebuilding part of a home Completing major remodeling Renovating before occupancy Financing improvements with a renovation loan or construction loan However, renovation projects can create special insurance questions because part of the home may already exist.
Borrowers should confirm whether the existing structure, new work, materials, and liability exposure are covered.
Builder’s Risk Insurance for Construction-to-Permanent Loans A construction-to-permanent loan combines construction financing with a path to long-term mortgage financing after the home is completed.
That means insurance may also transition.
During construction, builder’s risk insurance may be required.
After construction is complete, homeowners insurance may be required.
Before closing, ask:
When does builder’s risk coverage begin? When does it end? When does homeowners insurance begin? What happens if construction is delayed? Does the policy need to be extended? Who pays for the extension? Is the lender correctly listed? Are all required endorsements included? A smooth transition from builder’s risk insurance to homeowners insurance can help avoid closing or conversion delays.
Builder’s Risk Insurance and Draw Schedules Construction loan funds are often released through draws.
The lender may not release funds if required insurance is missing or expired.
For example:
Loan Stage
Insurance Concern
Before closing Proof of builder’s risk may be required Before first draw Coverage may need to be active Mid-construction Policy must remain in force Before final draw Lender may review completion and insurance transition Before permanent mortgage phase Homeowners insurance may need to replace construction coverage
Insurance is not separate from the loan process.
It can affect construction funding.
Common Builder’s Risk Insurance Mistakes Avoid these common mistakes:
Assuming homeowners insurance covers construction Waiting until closing week to request coverage Not listing the lender correctly Using the wrong property address Forgetting to include materials stored off-site Ignoring policy expiration date Not checking flood, wind, or earthquake exclusions Assuming contractor tools are covered Not confirming who is responsible for the policy Letting coverage lapse during construction delays Not transitioning to homeowners insurance after completion Failing to send updated proof of coverage to the lender These mistakes can create coverage gaps and loan delays.
Questions to Ask Before Buying Builder’s Risk Insurance Before buying a policy, ask your insurance professional and lender:
Question
Why It Matters
Who must purchase the policy? Contract and lender rules may differ What coverage amount is required? Helps satisfy lender requirements Should the lender be listed? Lender may require mortgagee/loss payee language Are materials covered on-site? Important for stored building materials Are materials covered off-site or in transit? Useful if items arrive before installation Are theft and vandalism covered? Theft can be a major construction risk Are wind, flood, or earthquake covered? High-risk locations may need extra review Are soft costs covered? Some policies may include additional costs What is excluded? Prevents false assumptions When does coverage start and end? Avoids coverage gaps What happens if construction is delayed? Policy extension may be needed How does coverage transition to homeowners insurance? Needed before completion/occupancy
A builder’s risk policy should be coordinated with both the construction contract and the loan requirements.
Builder’s Risk Insurance Checklist for Construction Loans Use this checklist before closing on a construction loan:
Step
Action
Step 1 Ask the lender whether builder’s risk insurance is required Step 2 Confirm who is responsible for buying the policy Step 3 Review the construction contract insurance section Step 4 Confirm coverage amount with lender and insurance provider Step 5 Make sure property address/legal description is correct Step 6 Confirm lender clause requirements Step 7 Ask about on-site, off-site, and in-transit materials Step 8 Review weather, theft, flood, and earthquake exclusions Step 9 Confirm policy start and expiration date Step 10 Send proof of coverage to the lender early Step 11 Track policy expiration if construction is delayed Step 12 Prepare homeowners insurance before final completion
This checklist can help prevent closing and draw delays.
Why Builder’s Risk Insurance Should Be Planned Early Builder’s risk insurance should not be treated as a last-minute closing item.
It can affect:
Loan approval Construction loan closing First draw release Mid-project draw releases Construction timeline Builder coordination Cash to close Insurance transition after completion Permanent mortgage conversion Insurance expenses are one part of the funds borrowers may need to plan for. Construction loan down payment requirements can also affect how much cash is needed for the project.
If the policy is missing, incorrect, or expires too soon, it can slow down the financing process.
The best time to discuss builder’s risk insurance is before the construction loan closes.
Why Choose Loan Factory for Construction Loan Guidance? If you are searching for builder’s risk insurance for construction, you may already be preparing for a construction loan, construction-to-permanent loan, or new build project.
Loan Factory helps borrowers understand how insurance, builder documentation, appraisal, cash to close, and lender requirements fit into the construction financing process.
Here is how Loan Factory helps:
Access to 240+ lenders through one platform Zero application or junk fees to get started Review of construction loan, construction-to-permanent, new construction purchase, FHA, VA, Conventional, Jumbo, refinance, and other available mortgage options Transparent side-by-side comparison of rate, APR, monthly payment, taxes, insurance, mortgage insurance, closing costs, lender credits, and cash to close TERA technology platform to help streamline pricing, document review, and loan matching Local loan advisors who can help explain lender documentation needs, builder requirements, appraisal timing, draw schedules, insurance requirements, and permanent mortgage planning Builder’s risk insurance is only one part of construction financing.
Loan Factory helps borrowers review the full picture before moving forward: land, builder, budget, insurance, cash to close, draw process, and long-term mortgage structure.
Take the Next Step Ready to review construction loan and new construction mortgage options?
Sources: Experience Line Based on real construction loan, construction-to-permanent, new construction purchase, builder contract, appraisal, draw schedule, builder’s risk insurance, course of construction insurance, cash-to-close, and lender comparison scenarios reviewed by Loan Factory’s lending team.
Disclaimer This content is for informational purposes only and is not a commitment to lend or insurance advice. Builder’s risk insurance requirements, construction loan eligibility, loan approval, rates, APR, monthly payment, draw schedules, builder approval, appraisal results, inspections, insurance requirements, down payment, closing costs, cash to close, construction timelines, conversion terms, and program availability depend on borrower qualifications, property details, builder/project approval, insurance policy terms, lender guidelines, investor rules, market conditions, and applicable program requirements. Please consult a licensed insurance professional for insurance coverage guidance.
FAQ: Builder’s Risk Insurance for Construction 
