Western House
Builder’s Risk Insurance, also called Course of Construction Insurance, is one of the most important protections on your construction loan. It protects the property while the home is being built, before the home is complete and before a standard homeowner’s policy is typically available. Incorrect insurance, missing endorsements, short policy terms, insufficient coverage, or unclear payment treatment can create closing delays and compliance issues and delay your construction process.

What is Builder’s Risk Insurance?  
Builder’s Risk is temporary property insurance for a home or structure under construction. It is designed to cover the project while materials, labor, and improvements are being added to the property.   Coverage may include:
1. The structure under construction
2. building materials and supplies
3. Materials stored on-site
4. In some cases, materials stored off-site or in transit
5. Temporary structures such as scaffolding, fencing, or storage containers

Common covered perils may include fire, theft, vandalism, lightning, wind, hail, explosions, and certain weather-related losses. Coverage varies by carrier and endorsement. Builder’s Risk is not the same as general liability insurance. It typically protects the project or property itself. It does not usually cover bodily injury claims, contractor negligence claims, workers’ compensation, or the builder’s tools and equipment unless specifically endorsed. Flood, earthquake, faulty workmanship, wear and tear, employee theft, and design defects are commonly excluded or limited unless added by endorsement.

When is it needed?
Builder’s Risk is needed when there is not an acceptable homeowner’s insurance policy that clearly covers the property during construction or renovation. For our construction or renovation files we prioritize insurance this way:

Option 1: Acceptable HOI policy with construction coverage. An HOI policy may be acceptable only when it clearly covers the construction exposure.  The policy should cover the full loan amount or sufficient replacement cost of the home, confirm materials on site are covered during construction, show the carrier is aware the home is under construction, and confirm the policy will remain in force during construction.

Option 2: Builder’s Risk policy   If acceptable HOI coverage is not available, Builder’s Risk is required in lieu of HOI. The Policy term should align with the construction term or a minimum of 6 months. Coverage should be sufficient for the full loan amount or replacement cost, cover theft of building materials, and material coverage should be clearly documented.  If the policy lists a specific dollar limit for theft of building materials, that limit must cover the full materials budget.  

For VA construction/permanent loans, the Veteran may not pay Builder’s Risk or construction-period hazard insurance when it is a builder responsibility.  VA guidance states that on one-time close construction loans, the builder is responsible for fees normally paid by a builder obtaining interim construction financing, including hazard insurance during construction. The Veteran may not pay fees that are the builder’s responsibility.  

Where can the policy be obtained?  
Builder’s Risk can usually be obtained through your current insurance agent, if they write construction coverage. If you need insurance recommendations, please reach out below for a trusted area professional.

The French Team
479-326-1443
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