The insurance your lender will require

Why the normal policy does not work

Two things break it. The property is vacant, and it is under construction. Most standard homeowner's policies exclude or sharply limit cover in both situations, and an insurer who discovers the property was vacant at the time of a claim may decline it.

Builder's risk

Covers the structure and, usually, materials during renovation or construction. Normally written for the project term and extendable. This is what most fix-and-flip lenders require.

Vacant property / vacant dwelling

Covers an unoccupied building. Sometimes used where the work is light and the property is simply empty.

General liability

Covers injury on site. Frequently required alongside, and worth having whether or not it is.

Workers' compensation

Your contractor should carry it. Ask for the certificate, because in some states an uninsured sub can become your problem.

The mortgagee clause, which is what actually delays closings

The lender must be named on the policy, with their exact legal name and address in the specific form they require - the mortgagee clause or loss payee designation. Get it in writing from the lender and send it verbatim to your insurance agent.

What it costs, and what to check

• Budget for it as a real line item. Builder's risk on a renovation is materially more than a homeowner's policy on the same house, and it is a closing cost you must fund.
• Check the term. A six-month policy on a nine-month project leaves a gap, and a lapse is an event of default under most notes - see the annotated note.
• Check the coverage amount. Lenders generally want cover at least equal to the loan, and sometimes to replacement cost.
• Check what is excluded. Theft of materials, vandalism and water damage from an unheated property in winter are common exclusions and common claims.
• Tell the insurer the truth about occupancy. A policy obtained by describing a vacant renovation as an occupied home is a policy that will not pay.

The sequence that avoids a delay

1. Term sheet signed

   Ask the lender for the exact mortgagee clause wording and the minimum coverage requirement.

2. Two weeks out

   Get quotes for builder's risk covering the full project term plus a buffer, not the optimistic timeline.

3. One week out

   Bind the policy and send the certificate and evidence of premium payment to the closing team.

4. If the project runs long

   Extend the policy before it lapses. Diary this - a lapse is a default trigger, not just a gap in cover.