What Is Covered Under Builders Risk Insurance?
It covers a home during construction, damage to materials, labor and the structure itself from fire, theft, wind and similar risks.
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Wrong policy for closing
Builders risk covers a home while it's being built. Once the house is finished and you're closing, your lender wants a standard homeowners policy instead, one that covers the completed structure, not materials or construction work.
What your lender actually wants
The proof of coverage and binder your lender asks for before closing is dwelling coverage on the finished house, sized to rebuild it, plus liability. If you're buying a resale or a finished new build, builders risk isn't the policy to bring.
When builders risk does apply
If you're having a house built from the ground up and you or your builder holds a policy during construction, that coverage usually ends at completion. You'll still need your own homeowners policy starting the day you take ownership.
Setting your start date right
Your homeowners policy needs to start on closing day, not before or after. Your lender will tell you the exact date coverage must begin, and your declarations page should show that start date matching it exactly.
Dwelling coverage amounts vary from one insurer to the next for the same house, and so does price. Since this policy has to be in place by closing regardless of who you choose, it's worth checking that the coverage matches what it actually costs to rebuild the house, not just what satisfies the lender's minimum. Comparing a few quotes before you commit is how you catch that gap now instead of after closing.
How dwelling coverage gets set for your house
Dwelling coverage is the number tied to rebuilding your house if it's destroyed, not what you paid for it or what it would sell for. Land doesn't burn down, so that part of the purchase price is left out. The figure comes from the cost of labor and materials to rebuild the structure at current prices, which is why two houses that sold for the same amount can carry very different dwelling coverage numbers.
Insurers usually arrive at this figure using a rebuilding cost estimate, often based on square footage, construction type, and local labor and material costs. Some will send someone to look at the house, others work from the details you give them plus public records. If you're buying new construction, the builder's specs help get this number right. If you're buying a resale, especially an older house, it's worth checking that the estimate accounts for things like updated electrical or a renovated kitchen, since those change what it costs to rebuild.
A number that's too low means that if the house is a total loss, the payout falls short of what it actually costs to rebuild it, leaving you to cover the gap. A number that's too high means you're paying for coverage you'd never collect on, since insurers pay to rebuild the house, not more than that. Neither direction serves you, which is why this figure deserves a closer look than just accepting whatever an insurer quotes first.
Deductibles factor into this too. A higher deductible lowers what you pay for the policy, but raises what comes out of your pocket before coverage kicks in on a claim. Some policies set this as a flat dollar amount, others as a percentage of the dwelling coverage, which on a higher-value home can mean a larger out-of-pocket number than it first appears. Checking how a policy structures its deductible, alongside how it arrived at your dwelling coverage figure, is part of making sure the policy in place by closing is the right one, not just the fastest one to bind.
What else shows up on the declarations page
Dwelling coverage and the deductible aren't the only numbers your lender and you should look at before closing. A standard homeowners policy also includes personal liability coverage, which pays out if someone is hurt on your property and sues you. It includes a separate amount for personal property too, meaning the furniture, electronics and belongings inside the house. Lenders care most about the dwelling number because it protects their collateral, but the rest of the policy is what protects you.
Most policies also include loss of use coverage, sometimes called additional living expenses. If the house becomes unlivable after a covered loss, like a fire, this pays for a hotel or a rental while it's rebuilt. It's usually set as a percentage of your dwelling coverage, and your declarations page will show the exact figure for your policy. It's easy to overlook since nobody expects to need it, but it matters a lot if you ever do.
Two things a standard policy leaves out are worth knowing before closing, not after. Flood damage isn't covered under a regular homeowners policy, regardless of dwelling coverage amount. If the house is in a flood zone, your lender will likely require a separate flood policy. That has its own binder and timeline to sort out before closing. Earthquake damage is typically excluded too, and whether that matters depends on where the house is.
Escrow is the other piece people buying their first house often don't understand until it's explained plainly. If your lender escrows for insurance, part of your mortgage payment each month goes into an account the lender uses to pay your homeowners premium when it's due. You're not paying a separate lump sum once a year. The binder and proof of coverage your lender wants before closing is what gets handed off to that escrow setup. Confirming whether your loan escrows for insurance, and getting the premium amount right, keeps that first payment accurate instead of adjusted later.
Before you sign anything
Check that your declarations page shows a start date matching closing day exactly, and that dwelling coverage reflects what it costs to rebuild the house, not its sale price.
