What is builders risk insurance on an Arizona custom home?

A standard homeowners policy is written for a finished house, so a different policy has to cover the home from the slab to the final walkthrough: builders risk insurance, a temporary property policy for a house under construction. The Insurance Information Institute also calls it a course of construction policy, and notes it "may be available as a stand-alone policy, or as an add-on to your homeowners policy." It covers the partly built structure and the materials on your lot against losses like fire, monsoon wind and rain, theft of supplies, and vandalism. Once the home is done and you take occupancy, the builders risk policy ends and a standard homeowners policy takes over.

A custom build leaves a lot of value sitting out in the open for months. Lumber, trusses, copper, tile, and cabinets pile up on a dirt lot in the Arizona sun and wind. They can be damaged or stolen before the house even has locked doors. Builders risk is the policy that guards that growing investment until the home is finished.

What builders risk insurance covers

Builders risk covers physical loss to the building under construction and the materials meant to go into it. The Insurance Information Institute says the coverage protects against losses such as wind and rain, theft of materials like carpeting, tile, or wood, and vandalism. Fire is covered too. That matters on a job site full of sawdust, solvents, and temporary power.

The amount of coverage grows as the home does. The Insurance Information Institute explains that "while under construction, a building has an ever-increasing value as more of it is completed." So the policy is written to match. As the III puts it, "if a tornado destroys the building when it is half finished, the policy (if it is for replacement value) covers one-half of the value the building would have had if completed." A home that is three-fourths done is covered for three-fourths of its finished value. That is why the policy is usually written to the home's completed value, not the value on any one day.

In Arizona, the monsoon season is the real test. It runs from roughly mid-June through September. A microburst can flatten framing or drive rain into an open structure in minutes. Haboob dust storms can ruin exposed finishes. A house under roof but not yet sealed up is exactly the kind of loss builders risk is built to pay.

What builders risk does not cover

Builders risk is property coverage, so it leaves out several things you still need to handle. It does not cover the contractor's tools and equipment. The Insurance Information Institute notes the theft coverage applies to materials going into the home, not the builder's own gear. Those are the contractor's responsibility to insure.

It also does not cover liability. If a delivery driver or a curious neighbor is hurt on your job site, that is a liability claim, not a property loss. Contractors carry general liability insurance for that exact risk. As the III says, "since there is always a possibility that someone will file a lawsuit against you claiming to have been harmed by your work, you will almost certainly need liability insurance." Confirm your builder carries it, and check that you can be added as an additional insured.

Two natural disasters are normally excluded, just as they are on a homeowners policy. The Insurance Information Institute states that "flood damage is excluded under standard homeowners and renters insurance policies," and that earthquake coverage "is available from most insurance companies as a separate policy or an endorsement." If your lot sits in a wash or a FEMA flood zone, common on rural Maricopa County parcels, ask about a separate flood endorsement during construction. For a quick definition of the policy, see our builders risk insurance glossary entry.

How builders risk fits with your construction loan and homeowners policy

Your lender almost always requires builders risk coverage before it funds your loan. A construction loan releases money in stages, and the bank wants the asset it is financing protected at every stage. Expect proof of a builders risk policy naming the lender to be a condition of your first draw. Our pages on construction loan requirements in Arizona and the construction loan draw schedule show where this lands in the process.

The policy is short-term by design. It runs for the construction period, often six to eighteen months, and then ends. Before it lapses, you switch to a standard homeowners policy that covers the finished home. The Insurance Information Institute advises homeowners to "contact your insurance agent or representative before, or shortly after, construction begins" so coverage lines up cleanly. Our page on whether you need homeowners insurance during construction covers that handoff in detail.

One more practical point on the Arizona market. The Arizona Department of Insurance and Financial Institutions lists more than 100 companies licensed to offer homeowners coverage in the state, and not all of them write builders risk the same way. Some bundle it as a homeowners add-on, others sell a stand-alone course of construction policy through a specialty insurer.

How long it lasts and what it costs

A builders risk policy is written for a set construction term, usually 6, 9, or 12 months, with options to extend. You pick a term that covers your expected build, plus a cushion for the delays that are normal on a custom home. If the build runs long and the policy lapses, a loss could fall in a gap with no coverage. So match the term to a realistic timeline, and ask how an extension works before you need one.

Price depends on the home's completed value, the build length, the location, and the deductible. As a rough guide, builders risk often runs a fraction of a percent of the completed value for the full term. But that is not a fixed rate. It shifts with the market. Arizona pricing also reacts to wildfire and monsoon risk in rural areas like Cave Creek and Rio Verde. Do not treat any quoted figure as locked in. Builders risk prices change, so check the current cost and rate on your actual lot and home before you sign.

Who buys the policy and what to confirm

On a custom build, either you or your builder can carry the builders risk policy, and your contract should say which. Many Arizona custom builders carry it and bill it as a line item, since they control the job site day to day. Others require the owner to buy it, especially on a build-on-your-lot project where the owner already owns the land and holds the construction loan. There is no single right answer, but there must be a clear answer in writing. Our page on who pays for builders risk insurance in Arizona walks through the trade-offs and the coverage gaps to avoid.

Before you sign, confirm five things: who buys the policy, that it is written to completed value, that the construction period is long enough to cover delays, that your lender is named, and whether you need a separate flood endorsement for your lot. Put the answers in the contract, alongside your other protections like lien waivers and the items every custom home contract should include.

Coverage terms and exclusions vary by insurer and by policy, and they change. Confirm coverage and current terms with a licensed Arizona agent before construction starts, so the policy fits your build. You can verify any agent's license with the Arizona Department of Insurance and Financial Institutions.

Where Jematell Homes comes in

We build the budget line by line so the number you sign is the number you build to. Every project is different, so we will confirm the specifics for your parcel and budget with you directly.

Sources

• Insurance Information Institute: Insurance for remodeling your home (builders risk / course of construction)
• Insurance Information Institute: Insurance coverage for construction contractors (builders risk valuation)
• Insurance Information Institute: Which disasters are covered by homeowners insurance (named perils, flood/earthquake excluded)
• Arizona Department of Insurance and Financial Institutions: Homeowners Insurance consumer information