Insurance During New Home Construction
A standard policy won't cover a house under construction. You need a builder's risk policy until it's finished.
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If you're building, not buying, finished
A builder's risk policy covers the structure while it's being built, including materials on site and sometimes in transit, against things like fire, theft and wind. It runs on a term that matches the build schedule, not a yearly renewal. Someone has to decide who buys it. Check the construction contract first, since many builders already carry one and bill it into the cost. If you're buying the lot and hiring a builder directly, the policy may need to be in your name. Once the house is finished and ready for occupancy, the builder's risk policy ends and a standard homeowners policy takes over. Your lender will want proof of that standard policy, with a binder showing dwelling coverage that matches what the house costs to rebuild, before closing can happen.
Get the handoff right
Builder's risk coverage ends the day the house is done. The homeowners policy needs to start right where it leaves off, with dwelling coverage that matches what your lender expects to see at closing.
What happens if the build runs long or goes over budget
Builder's risk policies are written for a set term, usually six months to a year, based on the schedule the builder gave when the policy was bought. Construction rarely finishes exactly on time. If the build is going to run past the policy's end date, it needs to be extended before it expires, not after. An extension usually costs something, and the insurer has to agree to it. Nobody wants to find out the coverage lapsed the week before the roof goes on.
The other number that matters is the coverage amount itself, which is based on the total cost of construction, not the finished value of the house. If change orders or material costs push the project over the original budget, the policy may no longer cover the full cost to rebuild if something goes wrong midway through. Builders and lenders sometimes catch this at the final inspection, not before, so it helps to ask whether the coverage amount was ever adjusted if the project cost went up.
When it comes time to switch to a standard homeowners policy, the dwelling coverage on that policy should reflect what the house actually cost to build, including any upgrades added along the way. This number is not the purchase price and not the market value. It is what it would cost to rebuild the house today if it were destroyed, and a contractor's estimate or the final construction cost is usually the starting point. Your lender will compare this figure against the loan amount, and if dwelling coverage is set too low, claims later on may not fully cover rebuilding costs.
One more thing worth checking before closing is whether the builder's risk policy is still technically active on the closing date. If there is any gap between the builder's risk policy ending and the homeowners policy starting, even a day or two, the house sits uninsured. Confirming the exact end date with the builder or the insurer, and setting the homeowners policy to start on or before that date, closes that gap before it becomes a problem.
What if you're buying a newly built house someone else is constructing
Not everyone reading this is hiring their own builder. If you're buying a spec house or a new construction home from a builder who owns the project, the builder carries the builder's risk policy and you are not responsible for it. Your job starts later, at the point where you're getting a mortgage and the lender wants proof of a standard homeowners policy before closing, the same as with any resale house.
The timing still matters because new construction closings move around more than resale closings do. A builder's completion date can shift by weeks depending on inspections, permits or weather, and closing moves with it. Lenders typically ask for a binder showing coverage starting on or before the closing date, but if that date hasn't been set yet, it helps to ask the lender how close to closing they need the policy finalized, since insurers won't bind coverage on a house that isn't finished.
The dwelling coverage amount on this type of purchase is more straightforward than it is for a custom build. Because the builder has already set a sale price based on finished construction, that number, or the builder's stated construction cost if it's different from the sale price, is usually the right starting point for dwelling coverage. It is still worth checking that figure against a rebuilding cost estimate rather than assuming the sale price and the rebuild cost are the same thing, since land value is part of what you're paying for but not part of what a policy needs to cover.
One detail specific to new construction purchases is the certificate of occupancy. Insurers generally won't start a standard homeowners policy until the house has passed final inspection and is legally ready to be lived in. If closing is scheduled before that certificate is issued, there can be a mismatch between when the lender wants proof of insurance and when an insurer is willing to provide it. Flagging this early, rather than the week of closing, gives everyone time to adjust either the closing date or the insurance start date so nothing is left uncovered.
Before you sign anything
Find the exact date your builder's risk policy ends, and set your homeowners policy to start on or before it. Then check that its dwelling coverage matches the final construction cost, not the sale price.
