Quick answer: While a home is being built, it is usually protected by a builder’s risk policy, bought by either the builder or the owner, which covers the structure and materials against perils like fire, wind and theft during construction. A standard homeowners policy is designed for finished, occupied homes and excludes theft of materials and supplies for a dwelling under construction. You generally switch to a homeowners policy at completion or closing, before you move in, and you should set the dwelling limit based on the cost to rebuild, not the purchase price.
Building a new home involves dozens of decisions, and insurance is easy to overlook until the lender asks for proof of coverage. The rules are different during construction than after move-in, and gaps can appear in the handoff between the two.
This article explains how coverage typically works using the Insurance Services Office (ISO) Homeowners 3 Special Form as the reference for the finished home and common builder’s risk policy terms for the construction phase. For the overall structure of homeowners coverage, see our homeowners insurance guide.
Sources: Insurance Services Office (ISO) Homeowners 3 Special Form (HO 00 03) theft and vandalism provisions for dwellings under construction and vacancy rules; Insurance Information Institute (Triple-I) guidance on builder’s risk insurance; National Association of Insurance Commissioners (NAIC) homeowners insurance guidance; International Code Council (ICC) information on building codes. Policies differ by insurer and state. This is general information, not insurance advice. Read your own policy and construction contract.
Two Phases, Two Types of Coverage
Insurance for a new home usually happens in two stages:
| Stage | Typical coverage | Who usually buys it |
|---|---|---|
| During construction | Builder’s risk policy, sometimes called course of construction insurance | Builder for production homes; owner or builder for custom builds |
| After completion | Homeowners policy, usually an HO-3 | Owner, often required by the lender at closing |
| Throughout | Builder’s general liability and workers compensation | Builder and subcontractors |
Knowing who carries what, and when one ends and the next begins, is the key to avoiding a gap.
What Builder's Risk Insurance Covers
A builder’s risk policy is property insurance for a structure under construction. Policies vary, but they commonly cover:
- The structure itself as it is built, often valued at the completed construction cost.
- Materials and supplies on site, and sometimes in transit or stored off site.
- Perils such as fire, lightning, wind, hail, explosion, vandalism and theft.
- Temporary structures such as scaffolding and construction trailers, depending on the form.
Common exclusions include:
- Faulty workmanship, design errors and defective materials, though resulting damage may be covered.
- Wear and tear, mechanical breakdown and gradual deterioration.
- Earthquake and flood, unless added.
- Employee theft and mysterious disappearance.
- Contractor tools and equipment, which usually need separate inland marine coverage.
Builder’s risk coverage typically ends when the building is completed, occupied, put to its intended use or sold, or when the policy term expires, whichever comes first. Read the termination wording closely.
Why a Standard Homeowners Policy Is Not Enough During Construction
Homeowners policies are written for completed, lived-in homes. The ISO HO-3 includes several provisions that limit coverage during a build:
- Theft exclusion. The form excludes theft in or to a dwelling under construction, or of materials and supplies for use in construction, until the dwelling is finished and occupied.
- Freezing rule. Freezing damage to plumbing and heating systems is excluded while the dwelling is under construction unless reasonable care is taken to maintain heat or drain the systems.
- Vacancy rules. The form limits vandalism and certain other coverage after a dwelling is vacant for more than 60 consecutive days, though a dwelling being constructed is not considered vacant under that provision.
Theft of lumber, appliances and copper from job sites is a well-known problem, so the theft exclusion alone makes builder’s risk coverage important.
Production Builders vs Custom Builds
Production and tract homes. When you buy from a builder who owns the lot and builds the home, the builder usually carries builder’s risk coverage until closing. Ask for confirmation, and do not assume it covers any upgrades you paid for separately.
Custom homes on your land. When you own the lot and hire a builder, the construction contract should say who buys builder’s risk insurance. Construction lenders often require the owner to provide it, and some insurers sell builder’s risk policies directly to homeowners. Make sure the policy names the right parties, including the lender.
Owner-builders. If you act as your own general contractor, you will likely need builder’s risk coverage and should look carefully at liability exposure, since you may be responsible for injuries on the site.
Liability on the Job Site
Property damage is only half of the construction risk. Someone could be injured on the site, whether a worker, a delivery driver or a curious neighbor.
- The builder’s general liability policy typically responds to injuries and property damage caused by the builder’s operations.
- Workers compensation covers injured employees of the builder and subcontractors in most states.
- Owners of the land may still face claims, especially owner-builders or owners who hire uninsured contractors.
Ask your builder for certificates of insurance showing general liability and workers compensation, and ask to be named as an additional insured on the builder’s liability policy where appropriate. If you own the lot during construction, talk with your insurer about owner’s liability coverage for vacant land or a property under construction.
Questions to Ask Your Builder About Insurance
A short list of questions can prevent misunderstandings later:
- Who carries builder’s risk insurance, and what are its limits and deductible?
- Does the policy cover materials stored off site or in transit?
- When exactly does builder’s risk coverage end?
- Are owner-paid upgrades and custom features included in the insured value?
- Does the policy include theft and vandalism, and are there special deductibles for wind or hail?
- Can you see certificates of insurance for general liability and workers compensation?
- What happens if a storm damages the home shortly before closing?
Get the answers in writing, ideally in the construction contract.
Condos and Townhomes in New Developments
Buyers of new condos and some townhomes face a different setup. The developer or association usually insures the building through a master policy, and owners buy an HO-6 policy for their unit interior, belongings and liability. Read the association documents to see whether the master policy covers original fixtures and finishes or only bare walls, since that affects how much unit coverage you need.
When to Switch to Homeowners Insurance
The homeowners policy should be in force before any gap opens up. Practical timing:
- Contact insurers several weeks before completion. Ask about effective dates tied to closing or the certificate of occupancy.
- Coordinate with the builder’s risk end date. Some builder’s risk policies end automatically when the home is occupied.
- Bind coverage before closing. Lenders require proof of homeowners insurance to fund the permanent loan.
- Do not move belongings in early without confirming which policy covers them.
Our guide to buying homeowners insurance before closing explains the binding process and documents lenders typically want.
Setting the Dwelling Limit for a New Home
The dwelling limit should reflect the cost to rebuild the home, not the purchase price or appraisal, which include land value. A new construction contract price can be a useful starting point, but rebuilding after a total loss can cost more than original construction because of demolition, debris removal and demand surges after disasters.
Our guide on how much dwelling coverage you need walks through replacement cost estimates. Consider also:
- Extended or guaranteed replacement cost endorsements that add a cushion above the limit.
- Ordinance or law coverage, which pays added costs to meet current building codes when repairing after a loss. The ISO HO-3 includes a basic amount, often 10 percent of the dwelling limit, and more can be purchased. A brand-new home already meets current code, but codes change over the life of the home.
- Replacement cost on personal property for the new furniture and appliances you buy for the home.
Our comparison of replacement cost and actual cash value explains the difference in settlements.
New Home Discounts
Many insurers offer lower rates for newer homes, reflecting new roofs, updated wiring and plumbing and construction to current building codes. Discounts vary by insurer and state. Features that may also earn credits include:
- Impact-resistant roofing and windows in hail or hurricane regions.
- Monitored security and fire alarm systems.
- Automatic water shutoff and leak detection devices.
- Fire sprinkler systems.
- Construction to voluntary standards such as the Insurance Institute for Business and Home Safety (IBHS) FORTIFIED Home program, which some states and insurers recognize with discounts.
Ask for the discount list when you get quotes.
Builder Warranties Are Not Insurance
New homes usually come with a builder warranty. A common structure offers one year on workmanship and materials, two years on major systems such as plumbing, electrical and HVAC, and ten years on major structural defects, though terms vary by builder and by any third-party warranty provider.
A builder warranty covers construction defects. Homeowners insurance covers sudden damage from perils like fire, wind and theft and generally excludes faulty workmanship and defects themselves, though it may cover resulting damage. If a defect causes a covered loss, such as a poorly installed pipe that bursts, both the warranty and the insurance may come into play, and the insurer may seek recovery from the builder.
Keep a copy of the warranty, register it if required and report defects in writing within the warranty periods.
The First Year After Move-In
The first year in a new home has its own insurance considerations:
- Settling cracks are common in new construction and are excluded under homeowners insurance as settling. Report them to the builder under the warranty.
- Landscaping and fences added after closing may change your Coverage B needs.
- Upgrades such as a finished basement, pool or outdoor kitchen should be reported to your insurer so limits keep pace.
- Homeowners association rules may require certain coverage, and the master policy may cover some shared structures.
Flood and Other Gaps for New Construction
New developments are sometimes built in areas with flood risk, and standard homeowners policies exclude flood. Check FEMA flood maps for the lot and ask about flood insurance, keeping in mind the typical 30-day waiting period for new NFIP policies. Our article on flood insurance basics explains the options. Earthquake coverage is also separate where that risk applies.
Frequently Asked Questions
Does homeowners insurance cover a house under construction?
Generally not fully. The standard HO-3 excludes theft of construction materials and has other limits for dwellings under construction, so builder’s risk insurance is the usual coverage during the build.
Who pays for builder's risk insurance?
It depends on the contract. Production builders usually carry it, while owners of custom builds may be required to buy it, especially with a construction loan.
When should I get homeowners insurance on a new build?
Before closing or occupancy, timed so it starts when builder’s risk coverage ends. Lenders require proof at closing.
What happens if a storm damages my new home right before closing?
Coverage usually depends on who holds the risk under the contract at that moment. Before closing, the builder’s risk policy generally responds, and the builder is typically responsible for delivering the home as agreed. Confirm the contract terms and the builder’s risk end date in advance.
Is new construction cheaper to insure?
Often yes. Many insurers offer discounts for newer homes built to current codes, though pricing varies.
Do I need builder's risk insurance for a major renovation?
For large remodels or additions, some insurers require or recommend builder’s risk or a renovation endorsement, and your homeowners policy may have limits during major work. Tell your insurer before work begins.
Does homeowners insurance cover construction defects?
Generally not the defect itself. Builder warranties address defects, while insurance may cover sudden damage that results from them.
The Bottom Line
New homes need builder’s risk coverage during construction and a homeowners policy after completion, with no gap between them. Read the construction contract for insurance responsibilities, set the dwelling limit based on rebuild cost, ask about new home discounts and treat the builder warranty and homeowners insurance as separate protections.
